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I. Group profile

2 RENAULT PAST AND PRESENT

In 1998, Renault recorded worldwide sales in excess of 2.2 From the first small car created by Louis Renault in 1898 to million vehicles and generated revenues of FRF 244 billion, of the latest arrival, the Clio II, Renault has been the source of which 61.4% outside France and 16% outside Europe. On many ground-breaking concepts in automotive history: the 4 December 31, 1998 the Renault Group had a combined work- CV in 1946; the Renault 4 — the first small front-wheel drive force of 138,321. car — in 1961; the Renault 16, with its hatch back and modular interior, in 1965; the Renault 5 with its polyester bumpers in BACKGROUND 1972; turbo-powered vehicles starting in 1980; the Espace in 1984; the Twingo in 1993; and the Mégane Scenic in 1996 are Over one hundred years ago — in 1898 — Louis Renault produ- just some of the models that have contributed to the com- ced the first "Type A". The same year, he formed "Société pany's tradition of innovation. In 1998 Renault exhibited Vel Renault Frères" to manufacture motor vehicles, taking Satis, a concept car that reveals the spirit of the brand's advantage of patents such as the first direct-drive transmis- forthcoming top-of-the-range models. sion. Based in the Paris suburb of Billancourt, the company achieved international renown through its success in motor STRUCTURE sports, and initially specialized in the construction of passen- OF THE RENAULT GROUP ger cars and taxis. During the First World War, it produced substantial volumes of trucks, light tanks and aircraft Renault is the parent company of the Renault Group and the engines. principal operating entity for passenger car and light commercial vehicle businesses in France. The Group's activities In 1922, having expanded strongly in the passenger car and are organized into three divisions: commercial vehicle markets, Renault became a limited company. Establishing production centers in France and abroad, – The Automobile Division (80% of revenues, i.e. FRF 195 bil- Renault gradually emerged as the French market leader. lion in 1998) is responsible for designing, manufacturing and marketing passenger cars and light commercial vehicles; it In January 1945 the company was nationalized as "Régie also handles related activities such as agricultural machinery Nationale des Usines Renault" and concentrated on producing the 4 CV – The Commercial Vehicles Division (17% of revenues, i.e. FRF 41 billion in 1998) pursues the same activities in the field of Through to the mid 1980s, Renault followed a strategy of commercial vehicles (trucks, coaches, buses, military and diversification in the industrial, financial and service sectors, special-purpose vehicles). while at the same time growing its industrial and commercial activities internationally. The Renault 5, which remains one – The Finance Division (3% of revenues, i.e. FRF 8 billion in of the Group's greatest commercial successes, was launched 1998) is a complementary division with financial and com- in 1972. But in 1984, the company ran into financial difficul- mercial businesses, bringing together the subsidiaries res- ties. As a result, it concentrated on restructuring and refocu- ponsible for sales financing and services; it is also respon- sing on core activities, and returned to profit in 1987. sible for managing the Group's cash funds.

In 1990, Renault became a limited company once again. In RENAULT'S STRATEGY the same year, it signed an agreement for close cooperation with the Volvo group. And in 1991 the two groups linked their Renault pursues a Group-wide strategy based on seven strategic automobile and commercial vehicle businesses via cross- goals: shareholdings. This arrangement was unwound in 1994 after – Achieve complete customer satisfaction through the quality plans to merge the two groups were shelved in late 1993. and reliability of our products and services. – Become the most competitive manufacturer in Europe. One year later, the French government opened Renault to – Offer a young, strong and innovative product range. outside capital, a first step towards privatization, which took – Accelerate Renault's international development. place in July 1996. – Develop a coherent and open Group. – Work more effectively together. GbF Ch 1-2/13 Angl.exe 28/04/99 7:15 Page 4

– Generate profits to meet shareholders' expectations and finance our growth.

These goals, which were reviewed in December 1998, are the foundations that underpin Renault's strategy of profitable growth. This strategy is based on three priorities: – developing a brand identity focusing on innovation in products and services for complete customer satisfaction; – becoming the most competitive manufacturer on our markets in terms of quality, costs and delivery times; – expanding our international scope to play a central role in automotive development throughout the world.

Principal consolidated data, 1989-1998 Financial data in Notes 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 FRF million Revenues (1) 174,477 163,620 165,974 179,449 (2) (7) 171,502 184,252 169,789 178,537 184,065 184,078 207,912 243,934 Operating margin (8) (1,572) 3,694 12,595 Operating income (loss) (1) 12,944 6,299 4,663 7,920 (3) 4,813 7,734 609 2,317 1,259 (5,987) 2,030 10,839 Pre-tax income (loss) (4) 9,725 1,380 4,109 6,313 (5) 3,969 6,481 1,094 3,485 1,976 (5,645) 4,095 11,145 Renault net income (loss) 9,289 1,210 3,078 5,680 1,071 3,636 2,139 (5,248) 5,427 8,847 Cash flow (1) 15,050 7,919 10,113 13,149 (2) 12,305 16,117 11,017 12,145 11,669 6,918 13,804 20,321 Investment (1) 10,361 13,213 21,554 11,685 (2) 20,637 13,565 12,043 16,050 15,499 17,046 16,289 14,902 Net indebtedness 17,593 27,110 15,528 12,549 of industrial and commercial activities (6) 8,727 7,851 (1,458) 3,368 9,385 2,097 (12,650) Shareholders' equity 22,466 17,014 31,331 33,965 33,877 42,784 43,796 37,770 43,917 51,562 Total workforce (no. of persons) (2) 174,573 157,378 147,185 146,604 139,733 138,279 139,950 140,905 141,315 138,321

Note: For the sake of consistency, commencing from the presentation of the 1993 accounts, Renault has (5) fully consolidated financial subsidiaries - share in income in companies accounted for by the equity adopted revised standards published by the International Accounting Standards Committee (IASC) and has method is recorded after taxes modified the principles used to record deferred taxation. In particular, since 1993 Renault has fully consolida- (6) new definition ted its financial subsidiaries. To allow different years to be compared effectively, Renault has prepared pro- (7) for comparison with 1997 and 1998 figures, see page 14 forma financial statements for 1991 and 1992. (8) operating margin: the notion of "operating margin" is introduced into the financial statements as of (1) excl. financial subsidiaries January 1, 1998. Operating margin corresponds to operating income before "other operating income and (2) incl. financial subsidiaries expenses" (3) incl. financial subsidiaries - new definition encompassing income and expenses previously recorded as exceptional items (4) financial companies accounted for by the equity method - share in income in companies accounted for by the equity method is recorded after taxes GbF Ch 1-2/13 Angl.exe 28/04/99 7:15 Page 5

Principal data in millions of French francs and euros

Financial data 1996 1997 1998

FRF EUR FRF EUR FRF EUR

Revenues 184,078 28,063 207,912 31,696 243,934 37,187

Operating margin (1,572) (240) 3,694 563 12,595 1,920

Operating income (loss) (5,987) (913) 2,030 309 10,839 1,652

Pre-tax income (loss) (5,645) (861) 4,095 624 11,145 1,699

Group net income (loss) (5,266) (803) 5,438 829 8,770 1,337

Renault net income (loss) (5,248) (800) 5,427 827 8,847 1,349

Earnings per share(1) (22.07) (3.36) 22.79 3.47 36.98 5.64

Share capital 5,995 914 5,995 914 5,995 914

Shareholders' equity 37,770 5,758 43,917 6,695 51,562 7,861

Total assets 217,640 33,179 230,121 35,082 250,086 38,125

Dividends(1) 0 0 3.5 0.53 5.00 0.76225

Cash flow 6,918 1,055 13,804 2,104 20,321 3,098

Investment 17,046 2,599 16,289 2,483 14,902 2,272

Net indebtedness of industrial and commercial activities 9,385 1,431 2,097 319 (12,650) (1,929)

(1) in FRF and EUR.

Exposure to Currency Risk

In 1998, Renault made 70% of revenues in euro-zone countries, of which 31% outside France. For this reason, the impact of currency fluctuations on revenues and earnings was limited chiefly to movements of the pound sterling and the US dollar. The currencies of the countries participating in Economic and Monetary Union converged during the course of 1998 ahead of the advent of the euro in January 1999. GbF Ch 1-2/13 Angl.exe 28/04/99 7:15 Page 6

OWNERSHIP STRUCTURE AND STOCKMARKET PERFORMANCE 5

PRINCIPAL SHAREHOLDERS On November 21, 1994 the protocol shareholders signed an agreement whereby they retained their entire stake for three On December 31, 1998 the French state held 44.22% of months and 80% of the stake for the subsequent 21 months. Renault's share capital. Renault employees, past and present, During the three years following this initial 24-month period, held 3.24% of the shares; these holdings are either managed any sale involving all or part of that 80%, either to a third through a collective investment fund or recorded in pure party or to another protocol shareholder, would be subject to registered form. the preemptive rights of the other protocol shareholders.

During the course of 1998 Rhône-Poulenc Finance sold its The terms stipulated for the Associated Shareholders Group, entire holding of Renault shares, as provided for in a share- which took an ownership interest in Renault in July 1996, holder protocol. Concomitantly, some of the parties to the contain non-transferability clauses that expire on the same protocol exercised their preemptive right to a portion of that dates as those accepted by the Protocol Shareholders Group stake. At end-December, the Protocol Shareholders' Group formed at the time of the initial public offering (IPO) in owned 7.19% of Renault's capital. November 1994.

A survey conducted in February 1998 identified approximately 280,000 individual shareholders. This does not include Ownership of Share Capital and Voting Rights Renault employees who subscribed to the employee owner- 31/12/98 31/12/97 31/12/96 ship plan at the time of the IPO. French state 44.22 44.22 45.87 Pursuant to articles 217-2 to 217-7 of the Companies Act of AB Volvo - - 11.35 July 24, 1966, the Joint Annual Shareholders Meeting of Protocol and Associated Shareholders June 11, 1998, authorized the company to trade in its own Lagardère Groupe 1.50 1.55 1.50 shares in order to stabilize the market. Transactions made under the terms of this authorization must be executed Banque Nationale de Paris 1.31 1.41 1.50 within a maximum purchase price of FRF 300 or the equiva- Sogepaf (Elf-Aquitaine group) - - 1.50 lent in euros, and a minimum sale price of FRF 100, or the Caisse des Dépôts et Consignations 1.04 1.04 1.00 equivalent in euros, and the number of shares that can be Banque Cantonale Vaudoise 0.60 0.50 0.50 acquired cannot exceed 10% of the total number of Renault UBS 0.60 0.60 0.75 shares. The authorization expires at the Annual General Meeting on June 10, 1999. Bayerische Landesbank 0.40 0.40 0.50 Lazard Frères et Compagnie 0.40 0.40 0.50 The company has not traded in its own shares for price stabi- lization purposes. Crédit Commercial de France - - 0.50 Crédit National - - 0.50 SHARE PRICE AGF IART 0.32 0.26 0.25 Renault shares have been listed on the monthly settlement AGF Vie 0.32 0.26 0.25 section of the Premier Marché of the Paris Bourse since ING Group 0.25 0.25 0.25 November 17, 1994 following the IPO. The initial offering price Commerzbank 0.25 0.25 0.25 was FRF 165 (EUR 25.15). Renault was added to the CAC 40 Caisse Centrale des Banques Populaires 0.20 0.20 0.25 index on February 9, 1995. The shares are also traded on SEAQ International in London. Rhône-Poulenc Finance - 0.15 1.00

Public (incl. Group employees) 48.59 48.50 31.78 100.00 100.00 100.00 GbF Ch 1-2/13 Angl.exe 28/04/99 7:15 Page 7

Prices and Trading Volumes

Number of shares Price in FRF (EUR from January 1999) traded Close High Low July 1997 16,489,389 172.4 187.8 137.6 August 1997 11,371,983 154.0 175.0 150.5 September 1997 11,691,983 175.9 180.0 152.0 October 1997 10,864,250 160.5 186.9 148.7 November 1997 10,069,600 165.3 170.0 145.0 December 1997 9,812,083 169.3 182.0 163.7 January 1998 13,018,113 195.1 200.0 168.0 February 1998 10,468,314 212.0 212.0 188.5 March 1998 14,832,763 276.0 279.9 195.5 April 1998 10,594,593, 279.0 303.9 256.0 May 1998 9,183,202, 313.0 325.0 284.0 June 1998 9,462,865 343.9 358.0 312.0 July 1998 10,741,276 316.9 399.9 309.0 August 1998 13,706,916 263.8 326.9 252.1 September 1998 19,439,257 224.0 298.6 212.1 October 1998 16,264,551 237.5 237.5 174.0 November 1998 12,837,204, 264.0 277.0 211.6 December 1998 11,283,496 251.0 271.8 226.5 December 1998 (EUR) 11,283,496 38.26 41.44 34.53 January 1999 (EUR) 17,238,765 49.00 49.13 37.05 February 1999 (EUR) 12,638,265 42.50 49.30 41.91

The stockmarket crisis in Asia in the fall of 1997 created turmoil price moved in line with market expectations, both bullish and in all international financial centers. Renault, like most cyclical bearish. Having advanced at the beginning of the year on news stocks, experienced a sharp price correction, but rallied along of market share gains in Western Europe and the success of the with the rest of the market at year's end. On December 31, 1997 Renault range, the shares then followed the market downwards. the shares were trading at FRF 169.30, giving the Group a mar- Over the course of the year, they fluctuated between a low of ket capitalization of FRF 40.6 billion (EUR 6,19 billion). For 1997 FRF 168.00 in January and a high of FRF 399.90 inJuly. as a whole, Renault's stock rose 51.80%, compared with On December 30, the last day of franc-denominated trading, the 29.50% for the CAC 40 index. shares closed at FRF 251 (EUR 38.26), giving Renault a market In 1998, stockmarkets were driven until July by robust expecta- capitalization of FRF 60.2 billion (EUR 9.17 billion). The shares tions of growth in Europe and then, from late summer and rose 48.26% from December 31, 1997, while the CAC 40 index through to the fall, by fears of an economic slowdown for the gained 31.47% over the same period. Since the beginning of the remainder of 1999. Those concerns were prompted by the dis- year, the share has been on an uptrend relative to the close of concerting situation in Russia and the knock-on effects of a fre- 1998, moving between EUR 37.05 and EUR 49.3. sh financial crisis in Asia. Against this backdrop, Renault's share GbF Ch 1-2/13 Angl.exe 28/04/99 7:15 Page 8

400 FRF Euros Renault's Stockmarket 55 350 Performance (basis: IPO price) 300 45 250 35 Renault share price 200 CAC 40 Index 25 150

100 15

16/11/94 11/12/95 07/01/97 30/01/98 26/02/99

Of the subsidiaries and sub-subsidiaries of the Renault Group, the Spanish company FASA, which is 92.2% owned by the Renault Group, is listed on the Madrid stock exchange; and Renault Argentina, 58.5% owned by Cofal (itself 79.57% owned by Renault, in view of the warrants to be exercised in 1999), is listed in Buenos Aires.

CHANGES IN CAPITAL OWNERSHIP

On December 31, 1998, Renault’s share capital amounted to FRF 5,994,964,175 consisting of 239,798,567 shares each with a par value of FRF 25. The number of voting rights was 238,145,021. The shares are fully subscribed and paid-up.

Changes in capital ownership over 5 years Transaction Resulting capital Shares FRF in number of shares and securities 5/1994 Issue of 1 B share, FRF 15 3,400,628,655 179,153,807 A shares, FRF 15 (at FRF 1,000,000,000) 45,343,485 B shares, FRF 15 2,211,285 ICs, FRF 15 226,708,577 total shares, FRF 15 11/1994 Increase in par value of shares from 5,667,714,425 224,497,292 shares, FRF 25 FRF 15 to FRF 25 and elimination of some share categories 2,211,285 ICs, FRF 25 226,708,577 total shares, FRF 25 11/1994 Conversion of investment certificates (ICs) to shares 5,951,805,325 238,072,213 shares, FRF 25 Capital increase in cash Issue of 11,363,636 shares, par value FRF 25 (at FRF 176) 1/1995 Subscription of 936,200 shares, par value FRF 25 5,975,210,325 239,008,413 shares, FRF 25 Via exercise of warrants (at FRF 25 o/w FRF 15 in cash) 8/1996 Capital increase resulting from payment of scrip dividends: issue of 790,154 shares, par value FRF 25 (at FRF 127) 5,994,964,175 239,798,567 shares, FRF 25

Note: A shares held by the French state and B shares by AB Volvo.

The Joint General Meeting of Shareholders of June 11, 1998 authorized the Board of Directors to make one or more issues of bonds, denominated in French francs, foreign currencies or euros, in an amount not exceeding FRF 10 billion or the equivalent in foreign currencies or euros(1). Furthermore, in connection with the capital increase and the issuance of securities granting access to the company's share capital, as authorized by the Joint General Meeting of June 10, 1997, the Joint General Meeting of June 11, 1998 authorized the Board of Directors to: • convert the company's share capital to euros • increase the share capital by raising the par value of the shares such that the value obtained by applying the conversion rate is rounded up to the next cent (hundredth of one euro) or, at most, the next euro • make the corresponding changes in the articles of incorporation. (1) Authorization valid up to the Annual General Meeting convened to approve the accounts for 1999. GbF Ch 1-2/13 Angl.exe 28/04/99 7:15 Page 9

STOCK OPTIONS REDEEMABLE SHARES

In its twelfth resolution, the Joint General Meeting of June 11, Renault and Diac, the credit subsidiary of Renault Crédit 1998 authorized the Board of Directors to make one or more International, have issued redeemable shares (tires participa- grants of stock options to managers of the company and its tifs), as follows: related companies, in conformity with Article 208-4 of the – 1983 - Renault: 1,000,000 shares with a par value of FRF Companies Act of July 24, 1966. 1,000 – 1984 - Renault: 1,000,000 shares with a par value of FRF If these options are exercised, the number of shares thus pur- 1,000 chased or subscribed shall not exceed 4% of the share capital – 1985 - Diac: 500,000 shares with a par value of FRF 1,000. at this time (see chapter II, page 23). Renault and Diac redeemable shares are listed on the Paris DIVIDENDS Bourse. Trading volume and prices of Renault redeemable shares Dividends are paid out at the times and places specified either by the Annual General Meeting or, failing this, by the Board of Volume Price in FRF; EUR from Jan. 1999 Close High Low Directors. Dividends remaining unclaimed after the five-year validity period shall lapse, as specified by law. July 1997 59,390 1,748 1,752 1,622 August 1997 24,584 1,830 1,850 1,730 No. of dividend EPS (FRF) paying Dividend Tax Total September 1997 37,536 1,866 1,890 1,821 shares credit October 1997 14,803 1,785 1,885 1,737 1994 238,072,213 3.50 1.75 5.25 November 1997 8,210 1,800 1,810 1,760 1995 239,008,413 3.50 1.75 5.25 December 1997 12,637 1,790 1,820 1,750 1996 239,798,567 0 0 0 January 1998 22,656 1,948 1,950 1,780 1997 239,798,567 3.50 1.75 5.25 February 1998 101,331 2,014 2,015 1,948 March 1998 98,524 2,350 2,350 1,970 1998(*) 239,798,567 5.00 2.50(**) 7.50 April 1998 105,508 2,450 2,498 2,280 (*) in accordance with the proposal of the Board of Directors and the decision of the Annual General Meeting of June 10, 1999. May 1998 259,336 2,830 3,050 2,440 (**) tax credit for natural persons, the Finance Act for 1999 modified this regime for legal entities liable for corporate income tax. June 1998 149,070 2,875 3,197 2,756 July 1998 100,886 3,075 3,115 2,835 August 1998 87,018 2,815 3,110 2,800 September 1998 113,432 2,840 2,965 2,720 October 1998 48,221 2,600 2,835 2,600 November 1998 124,622 2,610 2,650 2,501 December 1998 37,556 2,736 2,745 2,592 December 1998 (euros) 37,556 417.10 418.47 395.15 January 1999 (euros) 22,508 434.80 440 403.5 February 1999 (euros) 46,746 426.50 442 425.50

On December 31, 1998 the total value of the redeemable shares issued by Diac in 1985 and still outstanding was FRF 231,805,000 (EUR 35,338,444). In the course of 1998, the price fluctuated between FRF 975 and FRF 1,175 (EUR 148,64 and EUR 179,13). The shares closed at FRF 1,110 (EUR 169.22) on December 31, 1998. GbF Ch 1-2/13 Angl.exe 28/04/99 7:15 Page 10

SHAREHOLDER INFORMATION 9

Vice President, Investor Relations

Frédéric Perier tel: (+33 1) 4104-5309 fax: (+33 1) 4104-5149

In 1995, Renault formed a shareholders' club called Actionnaires en Direct. The club's members, who now number around 34,000, receive a quarterly newsletter and a summa- ry of the annual report; they also have access to a reduced rate telephone information line. Financial information is also available on Renault's Website.

A consultative committee comprising 12 Actionnaires en Direct members, including two employee shareholders, was set up in 1996 to advise the company on financial public relations and shareholder relations. In 1998, the committee met twice, once in a plenary session in the presence of the Chairman, and once for a working session. In July, 1998, in compliance with the committee's charter, applications were invited to fill seven of the seats, vacated because of the expi- ry of 6 terms of office and one resignation. The committee met for the first time in its new form during the first quarter of 1999.

Shareholder Information Line: (+33 1) 4104-5999 Reduced rate line: 0801-071-997 (inside France only) Telephone information for employee shareholders: (+33 1) 4103-1314 Internet: www.renault.com

Shareholders' Club RENAULT Actionnaires en Direct Investor Relations Department - 0760 34, Quai du Point du Jour B.P. 100 - 92109 Boulogne Billancourt-France GbF Ch 1-2/13 Angl.exe 28/04/99 7:15 Page 11

10 SENIOR MANAGEMENT

The company is managed by a Board of Directors with fifteen Order of rotation of the Board of Directors members. Eleven are chosen by the Annual General Meeting (at time of Annual General Meeting) of Shareholders, three represent the company's employees 1998 Mr. LAGARDÈRE and one represents employee shareholders. Directors are Mr. SCHWEITZER appointed for a term of 6 years, subject to the provisions of 1999 BNP (represented by Mr. PEBEREAU) Article 10 of the articles of incorporation concerning the Mr. RIBOUD renewal of the Board of Directors by rotation. 2000 Ms. SEYVET Mr. STUDER Board of Directors on December 31, 1998 2001 Ms. POTVIN(1) Mr. CAMESCASSE(1) First appointed Mr. BOUSSET(1) (2) Chairman Mr. PAYE Louis Schweitzer(1) May 1992 2002 Mr. ALANCHE(1) Chairman and CEO Mr. JACHIET Directors Mr. MARTRE Pierre Alanche(6) June 1997 2003 Mr. de COMBRET Banque Nationale de Paris(2) May 1995 Mr. PEYRELEVADE represented by Michel Pébereau, Chairman and CEO (1) The appointment of directors representing employees and employee shareholders is not (1) confirmed as Jean-Pierre Camescasse(3) April 1989 subject to renewal by rotation Chairman by the Board of Directors meeting of François de Combret(7) July 1996 (2) Replaced Gérard Muteau, who resigned, on January 19, 1999 July 26, 1996 Associate Director, Lazard Frères et Compagnie (2) appointed by the Annual General Jean-Luc Lagardère(4) May 1989 Meeting Administrator, Lagardère S.C.A. The Board of Directors appoints one of its members as of May 24, 1995 (7) (3) elected/reelected Nicolas Jachiet March 1998 Chairman. The Chairman, who must be a natural person, may Head of Financing and Shareholding Department by employees on stand for reelection when his term of office expires. The November 5, 1996 Treasury Division (4) appointed by the Ministry of the Economy, Finance and Industry Annual General Meeting can decide to allocate directors' fees Joint General Meeting of July 11, 1994 Jeanne Seyvet(8) December 1998 for Board members, in which case the amount of such emolu- (5) appointed/reap- Director-General, Industry, ments remains in force until such time as a new decision is pointed by the Joint Information Technologies and Posts General Meeting of made. Every Board member must hold at least one registered Ministry of the Economy, Finance and Industry July 26, 1996 share. In 1998, the Board of Directors met seven times. (6) appointed/reap- Henri Martre(6) July 1996 pointed by the Joint Honorary President, Aerospatiale General Meeting of In accordance with the recommendations of the 1995 Viénot June 10, 1997 Gérard Muteau(3) April 1989 Report on corporate governance in France, Renault's Board (7) appointed/reap- Jean-Claude Paye(5) July 1996 pointed by the Joint of Directors has adopted a system of bylaws and specialized General Meeting of State Councilor committees. June 11, 1998 Jean Peyrelevade(7) May 1994 (8) appointed by Chairman and CEO, Crédit Lyonnais ministerial order of The bylaws define the role of the Board of Directors, who col- December 11, 1998, Danièle Potvin(3)(9) November 1996 ratified by the Board of lectively represent the company's shareholders, and have led Antoine Riboud(2) May 1995 Directors meeting of to the drafting of a charter that establishes the rights and December 15, 1998 Honorary Chairman, Danone (9) maiden name, prior (5) duties of Board members. The Board of Directors has also to her marriage in Robert Studer July 1996 1997, was Ms Terreau Former Chairman, UBS adopted procedures for the use and/or disclosure of privile- ged information.

To permit in-depth examination of specific topics relating to the Board of Directors' role, three specialized committees were created in 1996: GbF Ch 1-2/13 Angl.exe 28/04/99 7:15 Page 12

– an accounts and audit committee, chaired by Robert Studer Patrick PÉLATA ...... Senior Vice President, and composed of Jean-Pierre Camescasse, Pierre Alanche, Vehicle Development Nicolas Jachiet and Jean Peyrelevade. The committee's mis- Francis STAHL ...... Senior Vice President, Light Commercial Vehicles sion is to analyze the financial statements of the parent company and the consolidated reporting entity, and to ensure * Michel de VIRVILLE ...... Corporate Secretary General, Group Human Resources that appropriate methods have been used to prepare them * Senior Executives of the Renault Group who are members of the Group Executive – an appointments and remuneration committee, chaired by Committee chaired by Louis Schweitzer Antoine Riboud and composed of François de Combret, Michel Pébereau and Louis Schweitzer. The committee's mission is In 1998, the total remuneration of Renault Group officers to submit proposals to the Board for the appointment of new amounted to FRF 20,541,816. The percentage of the capital directors and to advise on the renewal of directorships that and voting rights held by members of management and admi- have expired nistrative bodies is not significant. – an international strategy committee, chaired by Jean-Luc Lagardère and composed of Jeanne Seyvet, Henri Martre, AUDITORS Gérard Muteau, Jean-Claude Paye and Danièle Potvin. The Statutory Auditors committee's mission is to analyze the company's international plans and present them to the Board. Deloitte Touche Tohmatsu- represented by Mr. Olivier Azieres 185, Avenue Charles de Gaulle Management Committee and Group Executive 92200 Neuilly Sur Seine, France Committee on December 31, 1998 Ernst & Young, Audit *Louis SCHWEITZER ...... Chairman and Chief Executive Officer represented by Mr. Dominique Thouvenin Patrick BLAIN ...... Senior Vice President, 34, Boulevard Haussmann Market Area France 75009 Paris, France Gérard DETOURBET ...... Senior Vice President, Powertrain Deloitte Touche Tohmatsu was appointed by the ordinary ses- Christian DOR ...... Senior Vice President, sion of the Joint General Meeting of June 7, 1996 for a six- Chief Financial Officer year term. Ernst & Young Audit was appointed by the French *Georges DOUIN ...... Executive Vice President, Finance Ministry on March 27, 1979 and was reappointed by Product & Strategic Planning and International Operations the ordinary session of the Joint General Meeting of June 7, Alain DUBOIS-DUMÉE ...... Senior Vice President, Corporate 1996 for a six-year term. The appointments of both auditors Communications will expire at the close of the Annual General Meeting conve- Jean-Baptiste DUZAN ...... Senior Vice President, Purchasing ned to approve the accounts for 2001. *Patrick FAURE...... Chairman and Chief Alternate Auditors Executive Officer, Renault V.I. Philippe GAMBA ...... Senior Vice President, Deloitte Touche Tohmatsu, Audit Market Area Europe alternate for Deloitte Touche Tohmatsu *Carlos GHOSN ...... Executive Vice President Antoine Bracchi Manuel GOMEZ ...... Senior Vice President, alternate for Ernst & Young Audit International Operations Michel GORNET ...... Senior Vice President, Manufacturing The alternate auditors were appointed or re-appointed by the *François HINFRAY ...... Executive Vice President, ordinary session of the Joint General Meeting of June 7, 1996 Sales and Marketing for a six-year term. Their terms of office will expire at the clo- Jacques LACAMBRE ...... Senior Vice President, Advanced pro- se of the Annual General Meeting convened to approve the jects, Research and Customer-Oriented accounts for 2001. Specifications Patrick LE QUEMENT ...... Senior Vice President, Quality and Corporate Design *Shemaya LEVY ...... Executive Vice President Luc-Alexandre MENARD ...... Senior Vice President, Mercosur GbF Ch 1-2/13 Angl.exe 28/04/99 7:15 Page 13

12 LEGAL INFORMATION

Organized as a société anonyme (public limited company) Statutory Appropriation of Net Income under French law, Renault is governed by the provisions of Net income is appropriated in compliance with existing legis- the Companies Act of July 24, 1966 and the provisions of the lation. Distributable income consists of the current year's Employee Profit Sharing Act No. 94-640 of July 25, 1994. income, less previous losses and amounts transferred to the The company was formed on January 10, 1945 and will cease legal reserves, plus retained earnings brought forward from to exist on December 31, 2088 except in the case of early previous years. Upon recommendation by the Board of termination or renewal. The head office is located at 34, Quai Directors, the General Meeting may then determine portions du Point du Jour, 92100 Boulogne-Billancourt, France. of this income to be allocated to optional ordinary and spe- Renault is registered with the Registrar of Companies in cial reserves or to be carried over. The balance, if any, is divi- Nanterre under the number B 780 129 987 (APE code 341 Z; ded among the shares in proportion to their paid-up and una- Siret code: 780.129.987.01918.) mortized value. Legal documents such as the articles of incorporation, In accordance with legal provisions, the Annual General minutes of Annual General Meetings, auditors' reports and all Meeting has the authority to offer shareholders the option of other documents made available to shareholders in accordan- receiving all or part of the dividend payout in cash or in ce with law may be consulted at the company's head office. shares. Requests for the payment of scrip dividends must be The company's corporate purpose is the design, manufacture, submitted within the time period established by the Annual trade, repair, maintenance and leasing of motor vehicles General Meeting, without exceeding three months from the (commercial, light commercial and passenger vehicles, trac- date of the Meeting. The Board of Directors may choose to tors, farm machinery and construction equipment) as well as suspend this period for up to three months if the share capi- the design and manufacture of spare parts and accessories tal is increased. used in connection with the manufacture and operation of General Meetings of Shareholders vehicles. It also encompasses all types of services relative to such operations and, more generally, all industrial, commer- General Meetings are convened in accordance with legal and cial, financial, investment and real estate transactions rela- regulatory provisions. All shareholders whose shares have ting directly or indirectly, in whole or in part, to any of the been registered at least five clear days before the meeting above purposes (cf. Article 3 of the articles of incorporation). date are entitled to attend. Owners of bearer shares or The company's fiscal year runs for 12 months between shares registered in an account not held by the company who January 1 to December 31. wish to attend or be represented at General Meetings must submit a certificate drawn up by the intermediary who holds SPECIAL PROVISIONS their account, attesting that their shares are not available in OF THE ARTICLES OF INCORPORATION the period up to the date of the meeting. Such certificate shall be submitted at the place indicated in the meeting noti- Modification of Share Capital and Voting Rights ce, at least five days before the date set for the General The Special General Meeting may, under the conditions spe- Meeting. Owners of shares registered in an account held by cified by law, increase or reduce the share capital and autho- the Company who wish to attend or be represented at rize the Board of Directors to carry out such transactions, General Meetings must have their shares registered on their with the possibility of delegating them to the Chairman of behalf in the Company register at least five days before the the Board. date set for the General Meeting. The Board of Directors is authorized to reduce the time period specified above. Shares are freely transferable in accordance with legislative and regulatory provisions. Such transfers are made in book entry form. GbF Ch 1-2/13 Angl.exe 28/04/99 7:15 Page 14

Statutory Thresholds For holdings of more than 5%, the requirement indicated in the previous paragraph applies to increments of 1% of the Shares are registered in an account according to the provi- share capital. For the purposes of determining the thresholds sions and terms established by law. Fully paid-up shares are in described above, indirectly held shares or shares assimilated either registered or bearer form, at the discretion of their to equity held as defined by the provisions of Articles 356-1 owner, subject to legislation in force and the articles of incor- et seq. of Act No. 66-537 will also be taken into account. The poration. However, shares that are not fully paid-up must be declarer must certify that the said declaration includes all in registered form. shares held or owned within the meaning of the preceding The company is authorized to make use of the appropriate paragraph, and must indicate the acquisition date(s). The legal provisions for identifying shareholders having immedia- declaration requirement applies in the same manner if the te or future voting rights in its own shareholders' meetings. holding falls below any of the aforementioned thresholds, 0.5% or 1% as applicable. In addition to the legal requirement that shareholders inform the company if they hold certain percentages of its share capital, If the conditions described above are not respected, any every shareholder or fund management company holding a num- shares exceeding the fraction that should have been declared ber of shares equal to or greater than 0.5% of the share capi- are stripped of voting rights for all shareholders' meetings for tal, or a multiple of this percentage less than or equal to 5% a period of two years after the required declarations are of the share capital, is required to inform the company of the made, insofar as this is requested at the meeting by one or number of shares held. Such information shall be notified by more shareholders who together hold at least 1 % of share registered letter with return-receipt within five trading days capital. of the registration of the shares that caused this threshold to be breached. GbF Ch 2-14/31 Angl.exe 28/04/99 7:08 Page 14

II. Renault in 1998

14 REVENUES

In 1998 almost all European car markets — France's in particular Against a backdrop of renewed economic growth, the trend in — experienced significant growth. Renault was the principal all Western European markets was highly positive. The beneficiary of this recovery, with automobile sales growing twi- European market as a whole recorded rises of 7.1% for pas- ce as fast as the European market. It was a year of success senger cars and 11% for light commercial vehicles. The mar- for all Renault car models, especially for the Mégane, which ket for heavy-duty trucks in Europe increased by 19.9% for became the second best-selling car in Europe, and also for vehicles over five tons and by 22% for vehicles over 16 tons. the Espace and Kangoo, each of which took the sales lead in The North American Class 8 market was also up, with a gain its category(1). Combined with the Group's ongoing cost-cut- of 20.4%. During 1998, Renault's unit sales increased in eve- ting program, these successes reinforced the profitability of ry geographical market. In all, worldwide sales of Renault the Automobile Division. In the Commercial Vehicles Division, automobiles were up 15.8% over 1997, to 1,864,333 passen- sales increased at both Mack and the European branch in a ger cars (+14.5%) and 264,306 light commercial vehicles context of expanding markets. Renault V.I., also involved in a (+26%). Truck sales at Renault V.I. followed the same trend, program to reduce costs, continued to improve its operating with the European branch selling 46,017 vehicles over five margin. The contribution to operating margin from the tons (+23.3%) and Mack 34,671 heavy trucks (+15.5%). Finance Division was virtually unchanged from 1997. Overall, Adjusted for changes in the scope of consolidation and the Group's profits increased significantly. accounting methods, these increases in unit sales resulted in Renault's main strategies for improving competitiveness and revenue rises of 16.5% for the Automobile Division and 17.7% profitability even further are the ongoing renewal of its pro- for the Commercial Vehicles Division. Group sales amounted duct range with innovative new models, reorganization of to FRF 243,934 million, compared with FRF 207,912 million in manufacturing facilities, constant efforts to cut costs, more 1997. On a comparable structure basis, consolidated reve- effective organizational structures and strengthened inter- nues were up 16.2%. national presence.

(1) All ranking and market data cited in this document are taken from statistics of the Comité des Constructeurs Français d’Automobile (CCFA), supplemented by internal Renault statistics.

Revenues by Division 1996 1997(1) 1997(2) 1998 1998/1997(2) FRF % FRF % FRF FRF % % million million million million Automobile 145,962 79.3 165,788 79.8 167,484 195,077 80.0 +16.5 Commercial Vehicles 30,007 16.3 34,180 16.4 34,520 40,619 16.6 +17.7 Finance 8,109 4.4 7,944 3.8 7,944 8,238 3.4 +3.7 Total 184,078 100.0 207,912 100.0 209,948 243,934 100.0 +16.2

(1) Reported. (2) For purpose of comparison, the 1997 figures have been restated to reflect the same scope of consolidation and accounting methods as in 1998. The main adjustments involve changes in the method of consolidation for Renault Argentina (FRF 1,807 million) in the Automobile Division and Heuliez Bus (FRF 348 million) in the Commercial Vehicles Division. GbF Ch 2-14/31 Angl.exe 28/04/99 7:08 Page 15

The contribution of each division is calculated after eliminating intercompany transactions within the Group. The two manufacturing and sales divisions accounted for 96.6% of total revenues in 1998 (80% for the Automobile Division and 16.6% for the Commercial Vehicles Division, compared with 79.8% and 16.4% respectively in 1997).

The Finance Division, which is fully consolidated, contributed FRF 8,238 million to revenues, up 3.7% from 1997. This amount corresponds almost entirely to sales financing revenues. Finance receivables increased by 11.7% to FRF 71.5 billion. Breakdown of Revenues: France/Foreign As a % 1996 1997 1998 France Foreign France Foreign France Foreign Automobile 47.2 52.8 40.5 59.5 39.4 60.6 Commercial Vehicles 38.3 61.7 32.3 67.7 33.3 66.7 Finance 53.8 46.2 48.5 51.5 45.7 54.3 Total 46.1 53.9 39.4 60.6 38.6 61.4

Revenues in France made up 38.6% of the total. Revenues outside France increased by 18.9% to FRF 149,780 million (61.4% of the total), showing the progress of the group's international development.

Geographical Breakdown of Revenues 1996 1997 1998 FRF % FRF % FRF % million million million France 84,782 46.1 81,976 39.4 94,154 38.6 Other EU countries 68,531 37.2 85,313 41.1 101,644 41.7 Total EU 153,313 83.3 167,289 80.5 195,798 80.3 Rest of Europe 6,920 3.7 7,715 3.7 9,138 3.7 Total EUROPE 160,233 87.0 175,004 84.2 204,936 84.0 Africa 2,834 1.5 2,971 1.4 3,290 1.3 North/South America 14,828 8.1 21,914 10.5 27,213 11.2 Asia/Pacific 6,183 3.4 8,023 3.9 8,495 3.5 Total 184,078 100.0 207,912 100.0 243,934 100.0

Europe, Renault's main market, accounted for 84% of revenues. The proportion of revenues outside Europe rose from 15.8% in 1997 to 16% in 1998 owing to growth in sales of Renault vehicles, notably in the Mercosur, and Mack trucks in the United States. GbF Ch 2-14/31 Angl.exe 28/04/99 7:08 Page 16

16 RESULTS

OPERATING MARGIN

This year's presentation of the Group's financial results introduces the notion of "operating margin" to give a more detailed picture of Renault's level of performance. Operating margin corresponds to operating income before "other operating income and expenses" as detailed below. Contribution to Operating Margin by Division (FRF million) 1996 1997 1998 1st half 2nd half Year 1st half 2nd half Year Automobile (2,240) 39 2,351 2,390 4,854 5,280 10,134 Commercial Vehicles (612) (230) 179 (51) 535 585 1,120 Finance 1,280 774 581 1,355 776 565 1,341 Total (1,572) 583 3,111 3,694 6,165 6,430 12,595

The Group's operating margin was FRF 12,595 million in 1998 Under this definition, "other operating income and expenses" (compared with FRF 3,694 million in 1997 and a negative FRF in 1998 constituted a net expense of FRF 1,756 million, an 1,572 million in 1996), or 5.2% of revenues. The very sharp increase of 5.5% from 1997. For comparison, this item increase from 1997 is attributable in particular to the amounted to FRF 1,664 million in 1997 and FRF 4,415 million Automobile Division, whose contribution rose from FRF 2,390 in 1996. The largest component was restructuring costs and million in 1997 to FRF 10,134 million in 1998. This FRF 7,744 mil- provisions, at FRF 1,600 million in 1998 (versus FRF 1,544 lion increase is explained by growth in unit sales in all final mar- million in 1997 and FRF 3,906 million in 1996). These charges kets as well as the effects of the manufacturing reorganization concerned mainly the manpower plan in Argentina, the shut- and the cost reduction program. The Commercial Vehicles down of a French subsidiary, Emboutissage Tôlerie Division also kept its contribution rising on the strength of Gennevilliers, and the restructuring of the sales network in increased unit sales in all markets, higher selling prices in the France. United States and positive effects from cost-cutting programs in Europe and the United States. Its contribution to the opera- OPERATING INCOME ting margin was FRF 1,120 million, up from a negative FRF 51 The definition of operating income is unchanged. million in 1997. The Finance Division provided a contribution of FRF 1,341 million, compared with FRF 1,355 million in 1997. After recognition of other operating income and expenses, Group operating income was FRF 10,839 million in 1998, Research and development expenses increased by 12.7% bet- compared with FRF 2,030 million in 1997 and an operating ween 1997 and 1998, reaching FRF 10,189 million and 4.2% of loss of FRF 5,987 million in 1996. The Automobile Division revenues. For comparison, R&D expenses were FRF 9,038 mil- increased its contribution from FRF 901 million in 1997 to lion in 1997 and FRF 9,125 million in 1996. Sales, general and FRF 8,407 million in 1998, while the Commercial Vehicles administrative expenses amounted to FRF 29,091 million, com- Division swung from an operating loss of FRF 191 million in pared with FRF 27,420 million in 1997. 1997 to an operating profit of FRF 891 million. The Finance Operating income is derived from operating margin by taking Division's contribution to operating income increased by into account other operating income and expenses, which 16.7% to FRF 1,541 million. The decline from the first half of consist of: 1998 to the second is explained by a FRF 311 million profit • restructuring costs and provisions, corresponding to a tax refund in the UK in the first half and • gains and losses on disposals of tangible and intangible long- by the impact of the manpower plan at DIAC in the second term assets (excepting sales of vehicles), half. • gains and losses on transactions in securities representing investments in operating activities (notably, disposals and amortization of goodwill), • items of an unusual nature or of an abnormally high amount. GbF Ch 2-14/31 Angl.exe 28/04/99 7:08 Page 17

Contribution to Operating Income (Loss) by Division 1996 1997 1998 (FRF million) 1st half 2nd half Year 1st half 2nd half Year 1st half 2nd half Year Automobile (911) (5,634) (6,545) (162) 1,063 901 4,249 4,158 8,407 Commercial Vehicles 26 (731) (705) (216) 25 (191) 513 378 891 Finance 660 603 1 263 742 578 1,320 1,087 454 1,541 Total (225) (5,762) (5,987) 364 1,666 2,030 5,849 4,990 10,839

Decisions to set aside provisions for restructuring are usually The internal Group agreement on assignment of head office recorded in the second half. This explains the decrease in ope- expenses was revised in 1998. Figures for the two prior rating income in the Automobile and Commercial Vehicles years, 1997 and 1996, have been modified accordingly. Divisions in the latter part of the year. RENAULT NET INCOME FINANCIAL INCOME As provided for under the Group's tax consolidation regime, Net financial items were positive at FRF 394 million in 1998, which was renewed on January 1, 1998 for a period of three compared with FRF 2,018 million in 1997 and FRF 324 million years, Renault determines its tax liability by including the in 1996. Financial income in 1997 included FRF 1,649 million of taxable income of most of its subsidiaries and affiliates and gains on the disposal of Elf Aquitaine and AB Volvo securities. offsetting against this amount certain taxes paid by the same subsidiaries and affiliates. SHARE IN NET INCOME OF COMPANIES ACCOUNTED In 1998, with Renault no longer benefiting from tax loss car- FOR BY THE EQUITY METHOD ry-forwards, current taxes represented an expense of FRF 4,444 million, compared with FRF 964 million in 1997. After Renault's share in net income of companies accounted for by a final FRF 1,935 million reversal of the provision for deferred the equity method represented a loss of FRF 88 million, tax assets (compared with FRF 1,503 million in 1997), net tax attributable mainly to the Turkish marketing subsidiary. For expense for the year came to FRF 2,375 million (compared comparison, this item represented income of FRF 47 million with net tax income of FRF 1,343 million in 1997). in 1997 and FRF 18 million in 1996. After deduction of this tax expense and negative minority GROUP PRE-TAX INCOME interests of FRF 77 million, Renault's net income amounted to FRF 8,847 million in 1998, an increase of FRF 3,420 mil- Group pre-tax income amounted to FRF 11,145 million, compa- lion from 1997 (FRF 5,427 million). red with FRF 4,095 million in 1997 and a loss of FRF 5,645 million in 1996. The contributions of the various Group divisions are given in the following table. Contribution to Pre-Tax Income (Loss) by Division 1996 1997 1998 Change (FRF million) 1998/1997 Automobile (6,447) 1,971 8,573 + 6,602 Commercial Vehicles (922) (159) 588 + 747 Finance 1,724 2,283 1,984 - 299 Total (5,645) 4,095 11,145 + 7,050 GbF Ch 2-14/31 Angl.exe 28/04/99 7:08 Page 18

18 CASH FLOW

Cash Flow Statement (FRF million) 1996 1997 1998 Cash flow 6,918 13,804 20,321 Decrease in working capital requirement 2,819 3,940 9,503 Increase in finance receivables (1,312) (6,103) (8,524) Cash flows from operations 8,425 11,641 21,300 Property, plant and equipment and intangibles (16,393) (15,475) (14,466) Asset disposals and other 3,072 6,183 2,889 Cash flows from investments (13,321) (9,292) (11,577) Proceeds from shareholders 168 483 182 Dividends paid (814) (121) (1,044) Net change in debt 2,696 243 (11,759) Cash flows from financing activities 2,050 605 (12,621) Change in cash and cash equivalents (2,846) 2,954 (2,898)

CASH FLOWS FROM OPERATIONS Vehicles Division (6.8%) and FRF 1,111 million for the Finance Division (7.7%). The investments of the manufacturing and Operations generated FRF 21,300 million in cash in 1998, sales companies are devoted primarily to renewing product compared with FRF 11,641 million in 1997. and component lines and modernizing production facilities. Cash flow (net income plus depreciation and provisions) The investments of the finance arm consist essentially of increased by FRF 6,517 million, rising from FRF 13,804 million vehicles on lease. In all, tangible and intangible investments in 1997 to FRF 20,321 million in 1998, owing mainly to impro- net of disposals amounted to FRF 11,863 million, compared ved operating conditions in the two manufacturing and sales with FRF 12,889 million in 1997 and FRF 14,092 million in divisions. The working capital requirement decreased by FRF 1996. 9,503 million in 1998 (compared with a decrease of FRF 3,940 Investments in securities net of cash acquired thereby million in 1997), owing notably to an increase in trade notes amounted to FRF 436 million in 1998, compared with FRF 814 and accounts receivable related to the higher level of activity. million in 1997. Disposals of investments in affiliates amoun- In addition, sales-financing receivables increased by FRF ted to FRF 413 million, compared with FRF 4,505 million in 8,524 million in 1998. 1997, and served to decrease outflows of cash associated with investments. CASH FLOWS FROM INVESTMENTS

Investments consumed FRF 11,577 million in cash in 1998, compared with FRF 9,292 million in 1997.

Capital expenditure (property, plant and equipment and intangibles) decreased by 6.5% to FRF 14,466 million. This amount breaks down as FRF 12,365 million for the Automobile Division (85.5%), FRF 990 million for the Commercial GbF Ch 2-14/31 Angl.exe 28/04/99 7:08 Page 19

Investment (tangible and intangible assets and securities) 1996 1997 1998 1998/1997 FRF % FRF % FRF % % million million million By division Automobile 14,016 82.2 13,642 83.7 12,635 84.8 –7.4 Commercial Vehicles 1,518 8.9 1,105 6.8 1,080 7.2 –2.3 Finance 1,512 8.9 1,542 9.5 1,187 8.0 –23.0 Total 17,046 100.0 16,289 100.0 14,902 100.0 –8.5 (1) The distinction By geographic market (1) between France and Outside France is made on France 14,277 83.8 12,297 75.5 9,867 66.2 –19.8 the basis of where the Outside France 2,769 16.2 3,992 24.5 5,035 33.8 +26.1 company making the investment is established. Total 17,046 100.0 16,289 100.0 14,902 100.0 –8.5 By type Property, plant and equipment and intangibles 16,393 96.2 15,475 95.0 14,466 97.1 –6.5 Securities 653 3.8 814 5.0 436 2.9 –46.4 Total 17,046 100.0 16,289 100.0 14,902 100.0 –8.5

CASH FLOWS FROM FINANCING Investment loans and marketable securities increased by ACTIVITIES FRF 15,209 million in 1998. For comparison, this item decreased by FRF 11,147 million in 1997. Financing activities generated a cash requirement of FRF In 1998 Renault distributed a dividend of FRF 3.50 per share 12,621 million in 1998, compared with a cash inflow of FRF for the year ended December 31, 1997. The total amount paid 605 million in 1997. These cash flows consisted of bond out to shareholders (before elimination of treasury shares) issues and redemptions; the net change in other borrowings, was FRF 840 million. In 1997 no dividend was distributed marketable securities and investment loans; capital contribu- relative to 1996. tions from minority interests and payments of dividends. Repayments of bonds and other borrowings, net of new issues, generated a requirement of FRF 3,450 million. In April 1998, Renault issued FRF 500 million in bonds indexed to the price of Renault shares, and Renault Crédit International (RCI) issued bonds in the amount of DEM 300 million, or slightly more than FRF 1 billion.

FINANCIAL POSITION

Shareholders' equity increased from FRF 43,917 million on to 6.1% of revenues. The net indebtedness of the industrial December 31, 1997 to FRF 51,562 million on December 31, and commercial activities, which had amounted to FRF 2,097 1998 as a consequence of the 1998 financial results. million, was entirely eliminated as a result, shifting to a net creditor position of FRF 12,650 million on December 31, 1998. Operations generated cash flow of FRF 20,321 million in 1998, and the Group lowered its level of investment slightly GbF Ch 2-14/31 Angl.exe 28/04/99 7:08 Page 20

20 RESEARCH AND DEVELOPMENT

Research and Development Expenses and a top speed of 120 kph. The project has enabled Renault by Division to acquire invaluable know-how for developing future produc- (FRF million) 1996 1997 1998 1998/1997 tion vehicles powered by fuel cells. % 3/ Fuel Economy Automobile 7,938 8,112 9,239 + 13.9 In the area of engines, the new Renault 16-valve and dTi units Commercial Vehicles 1,187 926 950 + 2.6 introduced in 1998 reduced fuel consumption by 15%. Work Total 9,125 9,038 10,189 + 12.7 along this line is now focusing on direct-injection gasoline engines, the new Turbeco turbocharger, common rail high- In 1998 the Group spent FRF 10,189 million on research and pressure injection systems for diesel engines and the new development, compared with FRF 9,038 million in 1997 and systems of treating exhaust gases that will appear on pro- FRF 9,125 million in 1996. These expenses relate to research, duction vehicles in 1999 and 2000. Another system under studies and development of vehicles, components and pro- development is the robotized gearbox (made from a manual duction technologies. This activity gave rise to the filing of gearbox actuated by an automated electrohydraulic system), 267 patents in 1998, compared with 230 in 1997. which will help to improve a vehicle's overall fuel economy. Research and development focused on five major areas in In parallel with these efforts, the multi-disciplinary "Frelon" 1998: project seeks to reduce excess fuel consumption due to fric- 1/ Extension of the Product Range tion. By working on tires and rolling resistance (in cooperation with tire makers and SNR) and on brakes, Frelon At the Paris Motor Show, Renault unveiled "Vel Satis", a luxu- achieves a gain in fuel economy and a simultaneous improve- ry four-seater coupe of avant-garde concept and design that ment in braking efficiency. An initial application of the sys- features sophisticated but unobtrusive technology (on-board tem will appear on the Scenic in 1999. telematics) to enhance driving enjoyment. A car that meets traditional top-of-the-range standards while reflecting crea- 4/ Safety tive, forward-looking design and uniquely French refinement, In 1998 Renault applied the results of its latest research on Vel Satis reveals the spirit of Renault's future top-of-the- structural compatibility in collisions between large and small range models. vehicles to the Clio II and Twingo 2. These two new models 2/ Environmental Protection now offer a high level of safety even in collisions involving a much heavier vehicle. As a defender of the values of personal mobility within a comprehensive vision of the transport system, Renault is Several major innovations in passive safety were also intro- taking multiple initiatives to assure an integral place for the duced gradually throughout the product range. The first is automobile while protecting the environment. The multi- the Renault System for Restraint and Protection for front- energy Scenic family, whether equipped with traditional end collisions. In addition to seat belt pretensioners, the sys- power plants (gasoline/diesel/LPG) or clean-break technolo- tem includes load limiters and the new programmed restraint gy (NGV, electric, hybrid), illustrates this determination to airbags. Working together for greatest effectiveness, these reduce fuel consumption, and thereby carbon dioxide emis- two systems developed by Renault can halve the forces exer- sions, as well as emissions of pollutants such as nitrogen ted by the seat belt during a crash. Complementing these oxides, hydrocarbons and carbon monoxide. safety features is the new close-contact head restraint, which can reduce the number of minor injuries from rear-end The Fever project, which Renault is conducting in coopera- collisions by 35%. In the event of side impact, Renault has tion with five European partners (Air Liquide, Ansaldo, De introduced a combined head/chest lateral airbag. Nora, Paris's Ecole des Mines and Volvo TD), is aimed at acquiring knowledge in the engineering and use of fuel cells Applying its expertise in passenger safety, Renault has deve- as an automotive power source. This objective has been loped the new Isofix child restraint system, engineered to achieved, since the prototype Fever has a range of 400 km adapt to the morphology of children's bodies. It can be posi- GbF Ch 2-14/31 Angl.exe 28/04/99 7:08 Page 21

tioned either rear-facing (for infants less than two years old) the Greater Paris region. Praxitèle is now operating in fully or forward-facing (for children from two to four). Safety is automated mode, twenty-four hours a day and seven days a enhanced by the use of a standardized Isofix attachment week, and the number of stations has increased. At the end system to secure the child seat to the vehicle's rear bench of 1998 Praxitèle has some 700 subscribers making nearly seat. 450 short trips each week.

All this work on passive safety has earned the Mégane a Every year, Renault staff and products bearing the marque's rating as the safest car in its segment by Euro NCAP, an inde- badge win prizes for inventiveness and creativity. Two pendent testing organization, following a series of high- examples of awards in 1998: Renault's programmed restraint impact crash tests performed on most of the cars in Europe's system was honoured at the International Body Engineering M1 segment. Conference, and the gas-powered Agora transit bus received the Golden Decibel trophy awarded by France's National 5/ Organization of Transport Systems Noise Abatement Council. The Praxitèle experiment with a self-service electric vehicle system continues in Saint Quentin en Yvelines, a new town in

WORKFORCE AND HUMAN RESOURCES

Number of Employees by Division on December 31 Renault's manpower plan called for 1,158 internal reassign- 1996 1997 1998 1998/1997 ments and 1,533 job cuts. Layoffs have been mitigated by (1) (%) age-related measures (government-backed early retirement Automobile 111,523 112,178 109,409 – 2.5 agreements) and aid for those moving to part-time positions. Commercial Vehicles 26,049 25,860 25,635 – 0.9 As part of the Group's employment plan, measures were Finance 3,333 3,277 3,277 – 0.0 taken to promote youth employment. In the area of employing Total 140,905 141,315 138,321 – 2.1 young people without job skills, Renault and the Ministry of (1) Changes in scope of consolidation had little impact on the workforce, which decreased by Employment and Solidarity renewed through December 31, 2,994 employees in 1998. The net impact of such changes was a decrease of 236: - a decrease of 664 people in the Automobile Division (–513 at Rimex; –228 at Sodicam; 2000 the 1992 framework agreement on bringing unskilled +206 at CAT; –129 at Renault Limoges), - an increase of 428 people in the Commercial Vehicles Division (+397 at Heuliez Bus; young people between the ages of 18 and 25 into the work- +31 at Renault Trucks Polska). place. An amendment signed in February 1998 extends the scope of this framework agreement to Renault Group subsi- Human resources have been a key factor in the profitable diaries and new businesses in the job markets covered by the growth of the business. Less rigid working time arrange- agreement. The amendment calls for 800 youth jobs to be ments have increased flexibility at all sites and subsidiaries, provided in the next three years. Since 1992 this placement both in France (Choisy le Roi, Cléon, Douai, Flins, Sandouville, scheme has found jobs for 1,106 young people. MCA, SOVAB) and abroad (Novo mesto and Palencia). Work- schedule adjustments have also made it possible to improve In 1998 the training plan focused on improving the fit bet- responsiveness to changes in market demand, increase uptime ween human resources and the needs of the business, nota- at production facilities, shorten development lead times and bly in terms of the cost reduction and growth objectives, and reduce costs. satisfying the aspirations of the personnel. Particular emphasis was put on preparing for retraining and mobility The use of innovative forms of work organization — rotating assignments as well as on implementing the "time credit" timetables, staggered hours, part-time options, "time cre- concept for training. This approach is a way of reconciling dits" and others — is another step in the same direction. career training for employees and the development of skills needed by the employer. GbF Ch 2-14/31 Angl.exe 28/04/99 7:08 Page 22

With an objective of 2 million hours devoted to training, or an ments, the new one is a framework agreement. It will give average of 43 hours per person, the training plan represents rise in coming months to negotiations at two levels. an investment of nearly FRF 500 million, or 5% of the payroll. – at company level, an amendment to the framework agreement will be negotiated with the aim of giving all employees The 1998 plan called primarily for: a stake in Renault's financial results. • enhancing job skills (36% of training hours), – at the establishment (job site) level, local agreements will • anticipating changes by preparing employees for retraining be negotiated to recognize performance at each site and and mobility assignments (30% of hours), take account of its specific characteristics. • increasing management skills (13% of hours). The profit-related bonus paid on April 10, 1998 to employees of In addition, training in new technologies (7% of total contact the Renault parent company in respect of 1997 financial hours) was provided to support start-ups of new industrial results was FRF 310 for each FRF 1,000 of base monthly salary, processes and new model launches. As part of Renault's with a minimum payment of FRF 2,504. international development, 6% of hours were devoted to lan- guage training. In accordance with legal requirements or special dispensa- tions, profit-sharing agreements were signed in all the princi- A new agreement on employing differently-abled persons pal companies of the Group. was signed in 1998 by management and all the unions. The main provisions concern employment, hiring and training, Profit-related bonus schemes were also implemented in the and accommodation during employment. Renault maintains principal companies to give employees a stake in the compa- its objective of having the differently-abled make up at least ny's profits, progress and achieved performance, in particu- 2% of annual new hires in engineering, commercial and admi- lar in the area of quality. nistrative positions. As regards procurement from the shel- For the Renault parent company, the amounts involved, equal tered sector, Renault commits to maintaining the flow of to 5% of consolidated income before tax (and before profit- business at the level of recent years (which is equivalent to related bonuses) plus site performance bonuses, were as fol- direct employment of 120 differently-abled persons). Other lows over the past five years: provisions cover hiring and training, both internally and in (FRF million) support organizations for the differently abled, and assuring suitable positions and work schedules for these persons. 1994 372 1995 290 WAGES AND PROFIT-SHARING 1996 219 1997 422 The average wage increase for production workers and non- managerial staff was 2.8% in 1998, while inflation remained 1998 788 at a subdued annual pace of about 0.3%.

Renault management has entered into an agreement with five labour unions (CFDT, CFTC, FO, CFE-CGC, CSL-SIR) on profit-related bonus schemes. As with previous such agree- GbF Ch 2-14/31 Angl.exe 28/04/99 7:09 Page 23

STOCK OPTIONS

The Board of Directors has granted stock options as follows: • On October 22, 1996, 446,250 stock options, including 64,000 reserved for senior managers of the Renault Group. These options may be exercised from October 22, 1999 until October 22, 2006. • On October 28, 1997, 553,750 stock options, including 94,000 reserved for senior managers of the Renault Group. These options may be exercised from October 29, 2002 until October 27, 2007. • On October 27, 1998, 1,912,500 stock options, including 670,000 reserved for senior managers of the Renault Group. These options may be exercised from October 28, 2003 until October 26, 2008.

These grants are summarized in the table below.

Options Granted Options Remaining Date Awarded Price Number of Beneficiaries on 31/12/1998 October 22, 1996 FRF 115.23(1) 273 446,250 October 28, 1997 FRF 163.30(1) 310 553,750 October 27, 1998 FRF 210.74(2) 410 1,912,500

(1) Price is equal to 95% of the average opening price of Renault shares over the twenty trading sessions preceding the board meeting at which the decision to grant the options was taken. (2) Price is equal to the average opening price of Renault shares over the twenty trading sessions preceding the board meeting at which the decision to grant the options was taken. GbF Ch 2-14/31 Angl.exe 28/04/99 7:09 Page 24

24 ECONOMIC ENVIRONMENT

To our knowledge, the Group's production does not depend Fuel and Vehicle Taxes on patents or licences belonging to third parties. France has affirmed its desire for gradual harmonization of taxes on gasoline and diesel fuel. The French authorities are REGULATORY FRAMEWORK committed to a gradual realignment of the tax difference in FOR ISSUES OF SAFETY, EMISSIONS France, currently FRF 1.43 per liter in favour of diesel, with the AND INDUSTRIAL ENVIRONMENT EU average, currently FRF 0.97. The rebalancing will begin in 1999 with an adjustment of 7 centimes. For the first time in The development of automotive electronics opens new pros- several years, France's tax on premium unleaded gasoline was pects in the area of accident avoidance, and applications with unchanged. this aim were introduced in 1998. Regulatory oversight of this technological evolution has taken the form of gradual defini- A provision of France's Finance Act for 1999 allows reimburse- tion of new safety requirements for electronic systems, parti- ment of part of the domestic tax on petroleum products for cularly concerning braking and vehicle handling. commercial vehicles over twelve tons.

As regards environmental issues, the emissions reduction At the same time, the legislature has consolidated the various requirements for light and heavy vehicles in the years 2000 tax incentives for clean vehicles, notably LPG vehicles, and and 2005 have now been set. In addition to significant cuts in extended them to include dual-fuel vehicles. allowed levels of emissions, the requirements call for a system Taxation in Europe of continuous monitoring of the vehicle's emission control system (On-Board Diagnostic or OBD system) as well as increased The European Union continues to be notable for wide dispari- durability and verification of compliance by vehicles in service ties in taxes applicable to motor vehicles. These disparities are (COPIS). For the first time, these stages in automotive emis- attributable to the lack of convergence in VAT rates and the sions reduction establish a clear link between vehicles and maintenance of specific taxes on vehicle purchases in many fuels. European countries. With the introduction of the euro, the per- sistence of these disparities continues to raise problems. Fuel Consumption and CO2 Emissions Designs and Models An agreement on the automobile industry's contribution to reducing emissions of greenhouse gases was concluded in In 1998 European Union institutions ended their examination 1998 between European car makers and EU authorities in of the designs and models directive that had been under Brussels. This agreement sets an overall target for carbon review since 1991. For the automotive industry, the directive dioxide emissions of new cars sold in Europe in 2008 at 140 governed the legal protection applicable to visible parts of the g/km, which corresponds to fuel consumption of 5.9 l/100 bodywork. Each member state is free to maintain the same (litres per 100 kilometers) for gasoline and 5.3 l/100 for diesel. protection for a further period, which will range in practice The Buenos Aires conference on global warming in November from five to seven years. 1998 highlighted the commitment of Europe and its industry to Recycling of End-of-Life (EOL) Vehicles reduce emissions of greenhouse gases. This conference also confirmed quantified targets for greenhouse gas reduction by Renault continues to implement the framework agreement on the principal countries and identified the main policy instru- EOL recycling that was worked out with the French govern- ments for achieving them. ment and the operators of the subsidiaries. In 1997 approximately 110,000 Renault EOLs were processed and 83.7% of vehicle weight was recycled. GbF Ch 2-14/31 Angl.exe 28/04/99 7:09 Page 25

Renault, already partnered with Fiat, BMW and Rover, signed a partnership agreement with Volvo in July 1997. Renault has thus become the first manufacturer to be active throughout Europe in recycling vehicles at the end of their life.

In July 1997 the European Commission adopted a draft directive on EOL recycling. The requirements and objectives of the draft directive are more demanding for automobile manufacturers than the voluntary agreements that had already been finalized in several European countries, notably Spain, Germany, the UK, Sweden, Austria, Italy, Belgium and the Netherlands. In particular, the recyclability objective for new vehicles is raised from 90% in 2002 in the framework agreements to 95% in 2005 in the directive, and reclamation of energy content alone is limited to 10%. The draft also calls for manufacturers to take vehicles back at the end of their life at no charge. It will now be discussed at the European Council and in Parliament.

Renault has set up a subsidiary to market refurbished OEM parts through its dealer network.

Litigation

At present there is no litigation in progress that might have a material effect on the profits, activity, assets or financial position of the Renault Group. GbF Ch 2-14/31 Angl.exe 28/04/99 7:09 Page 26

26 MAIN LINES OF DEVELOPMENT IN 1998

In 1998 Renault pursued its three-pronged strategy of profi- coach suited for both scheduled transport service and tourist table growth based on innovation, competitiveness and inter- excursions, and Agora Line, a bus designed for suburban national development. This strategy is aimed at making transit routes. In heavy-duty trucks, noteworthy new pro- Renault a top player in the world automobile industry, produ- ducts included the 400-horsepower version of the Premium cing four million vehicles a year by 2010 with half of that out- Long Distance, a new version of the Kerax, the innovative put outside Western Europe. Single concept for the outfitting of the cab on the Premium Long Distance Privilège, and the Kerax Route, specially adap- Innovative Product Range ted for the international market. In the United States, Mack Renault's commercial success rests on its range of products prepared for the February 1999 launch of the Vision, desi- and its ability to anticipate trends in lifestyles. The Group gned for long-distance hauling. must keep designing ever more innovative vehicles that are Enhanced Competitiveness not only attractive to customers but also safer, cleaner and more keenly priced. In the Automobile Division, the 1997 plan to cut costs by FRF 20 billion (relative to the 1997 budget) by the year 2000 has In automobiles, after successfully launching the Kangoo in the following main elements: October 1997 and the Clio II in April 1998, Renault completed • reduce purchasing costs by roughly FRF 10 billion; the overhaul of its offering in the small-car segment by • reduce the manufacturing cost at powertrain and assembly unveiling the Twingo 2 at the Paris Motor Show in October plants by raising capacity utilization rates and improving pro- 1998. Like the Clio II, the Twingo 2 offers a superior specifi- ductivity; cation and a higher level of safety at a lower selling price • cut the cost of designing and developing new vehicles; than its predecessor. • reduce distribution costs; The Mégane family was enlarged in September 1998 with an • achieve cost savings in other areas such as administrative estate version, launched in Turkey and then marketed in overheads, purchasing logistics for spare parts, fixed costs in Europe starting in March 1999. Besides a new design, greater marketing, etc. value for money in terms of equipment and even more effec- The plan is on schedule. In 1998, FRF 9 billion in cost savings tive safety features—which earned it the top ranking in its were achieved based on a constant level of activity (using a segment during crash tests performed in 1998 by Euro NCAP, measuring technique for isolating the impact on performance an independent European testing organization—the new when output levels change). The reduction in purchasing Mégane innovates by offering Europe's first direct-injection costs was 8%, in line with targets set for full-year 1998 des- gasoline engine. pite a tight supply situation that did not favour the division in negotiations with suppliers. Furthermore, the reduction in With its new range of 16-valve gasoline and direct-injection internal costs, achieved through both productivity gains on diesel engines, Renault has stepped up the pace in renewing site and overall rationalization of production facilities, excee- its powertrain components (engines and transmissions), in ded plan targets, supplementing the favorable effects of line with its objective of being among the world's best in this greater volume in 1998. domain by the year 2000. To accelerate cost reductions in areas with high potential but Renault has also affirmed its determination to remain in the requiring new approaches, eight cross-company teams were upper segments of the market by offering original concepts set up in May 1997. Made up of operating personnel from the and taking advantage of lower development costs. The March various units and disciplines involved, each team seeks out 1999 debut of the Avantime concept car at the Geneva auto and implements breakthrough solutions with expected gains show paves the way for the "Coupéspace". Avantime fore- of 30% on average within 12 to 18 months. By the end of shadows the innovative architecture of the vehicle being 1998 the teams had achieved significant results, and the developed under a partnership agreement with Matra objectives have been or will be attained in the different Automobile, a coupé that will be launched in 2000. domains that have been explored. Among these teams, the In commercial vehicles, Renault V.I. made two important pro- "Standardization" team, whose task was to reduce the diver- duct launches in its coach and bus range in late 1998: Ares, a sity of outsourced components on the Mégane by 30%, has GbF Ch 2-14/31 Angl.exe 28/04/99 7:09 Page 27

already met its objective. The "Manufacturing Logistics With this streamlined manufacturing process, Renault was able Costs" team, charged with trimming those costs by 25% by to react swiftly to changing patterns of demand in Europe in 2000, has identified a high potential for expense reduction. 1998. The agreements for flexible hours and working arrange- In this area, having parts suppliers at the manufacturing ments at the plants proved just how important they were sites, as close as possible to the assembly lines, is a key pro- when the bodywork and assembly sites moved to three shifts gress factor. Having done this to good effect in Flins and and the powertrain sites added weekend shifts. Curitiba, Renault will open an industrial park in Sandouville Better organization of production also resulted in a very for five of its biggest component suppliers in 1999. significant reduction in the time needed to ramp up to full The Finance Division is also participating in the cost optimi- output. The Flins plant was up to full speed on the Clio II in zation effort, and a cross-departmental team was set up just three months, compared with seven and a half months within Renault Crédit International in January 1999. for the Mégane.

The effort to take out costs will continue after the year The Curitiba plant, designed to assemble vehicles under 2000, and Renault is already drawing up the objectives that conditions of maximum flexibility and competitiveness and will be set for that period. surrounded by its major suppliers, was inaugurated on December 4, 1998. In commercial vehicles, Renault V.I. is still pursuing its objective of moving from a recovery phase to a phase of profitable Industrial Alliances and Cooperation Agreements growth. This transition cannot be achieved without an impro- Renaults seeks maximum efficiency and worldwide scale for vement in competitiveness. The Group has therefore under- each of its businesses. taken a series of actions in this regard, with a major drive to lower costs both internally and externally. In the area of pur- In automobiles, Renault is cooperating with NTN, a Japanese chasing, this is a question of finding suppliers with worldwide components supplier, to assure a long-term future for its uni- scale, chosen for their technical expertise and financial versal joints business at the plant in Le Mans. Fiat and soundness, to become true partners of the division. Renault have pooled most of their foundry activities, which are operated via Teksid S.p.A. (wholly owned by Fiat) and AT Renault V.I. is also stepping up the implementation of syner- Systèmes (an EIG belonging to Renault). The new group has gies between its two operating units in the area of heavy- the capability to position itself as a world standard in casting duty trucks. The objective of the Convergence program is to for the automotive industry. achieve maximum sharing of components on vehicles sold in Europe and the United States within three years. Renault V.I. and Iveco have merged their coach and bus activities in a jointly owned company. This 50/50 joint venture, Manufacturing Efficiency and Responsiveness named Iris.Bus, began operations on January 1, 1999 as num- Renault has been engaged for several years in a process of ber two in its sector in the European market and one of the rationalizing and streamlining its manufacturing facilities. world's larger producers of passenger transport vehicles. The general principle is to assign a single vehicle segment to The Finance Division, via its Renault Crédit International sub- each plant. With the Sandouville plant set to be producing a sidiary, is also pursuing an active partnership policy that single, top-of-the-range platform in 2000, only the Flins enables it to offer an ever-broader range of sales aid pro- plant will still be operating on a dual-flow basis, simulta- ducts and establish a presence in international markets. neously producing the Twingo and the Clio II on two different 1998 saw the birth of Renault Credit Polska, in partnership assembly lines. This manufacturing system is consistent with with Poland's Bank Slaski, and Renault Leasing Cz., offspring Renault's product range plan and platform architecture. The of a joint-venture contract with CAC Leasing in Prague. three French assembly plants for passenger cars will produce the range's three platforms: top-range, midrange and entry- Effective Organizational Structures level. The two Spanish plants will produce vehicles in the Renault's competitiveness strategy, based on lowering costs, high-volume segments, i.e. Clio II and Mégane. shortening lead times and improving product and service quality, must be backed up by effective organizational structures and management tools. GbF Ch 2-14/31 Angl.exe 28/04/99 7:09 Page 28

28 MAIN LINES OF DEVELOPMENT IN 1998

In research and development, the new Technocentre, inaugu- (program directors are given worldwide responsibility, sup- rated in May 1998, has two concrete objectives. One is to pliers are chosen on a worldwide basis, etc.); shorten the development time for new vehicles to 36 months, - strengthen upstream resources and promote innovation (by or 24 months for derivative models built on existing plat- involving suppliers more closely); forms, by the year 2000. This reduction is to be achieved - optimize organizational structures by project; with continued improvement in quality and in spite of the - arrange for customer input to guide engineering efforts; growing complexity of the vehicles and the increasingly - develop a manufacturing system equal in performance to strict standards they must meet. The other objective is to the best in the world. achieve economies of at least one billion francs on the deve- To meet customers' ever more demanding requirements, lopment costs of each new vehicle. Renault has given the go-ahead to the New Distribution Project, which aims to ensure delivery of a vehicle within two The Technocentre has adopted an innovative architectural weeks from the customer's order by 2001. This strategic pro- concept and a new form of organization in order to complete ject, which brings the end customer into the heart of the projects faster and more effectively. The new organization business, implies significant changes in Renault's manufactu- straddles traditional boundaries in two ways: ring system, both in terms of processes, which must be made – across disciplines: Renault's design and development engi- more flexible and responsive, and in terms of the organiza- neers, previously at several different sites, are now clustered tion of dealer, supplier and transport networks. together to work on a given platform. – across time: the three stages in the design of a vehicle — Effective January 1, 1999, Renault modified the organization advanced projects, projects, prototypes — are reproduced in of its regional sales departments in France to give them space in the three sections of the centre, known familiarly as greater focus on the field and customer service. In a move the Advance Precinct, the Hive and the Proto. consistent with this decision, DIAC also chose to reorganize With this new way of working, the 7,500 people grouped toge- along the same lines as the Renault network. Lastly, the ther at this site in late 1998 are able to carry on four or five pro- sales and marketing department of Renault V.I. decided to jects simultaneously. Some 1,000 of these people are from out- adopt a less top-heavy organizational structure in order to side the Renault Group, from component makers and suppliers, be closer to the customer and resolutely international. which are purposely brought in very early and associated very International Development closely with the development of new products. Internationally, Renault continued to put resources in place In parallel with the establishment of the Technocentre, several to increase its presence outside Western Europe. program management teams were set up in 1998. A process re-engineering program was begun in both the Purchasing The Bursa plant in Turkey, which already makes Mégane and Vehicle Engineering departments. With the reorganiza- sedans, began production of the station wagon version. tion of the Powertrain Department, which will take effect Marketed in Turkey since September 1998, this model has during 1999, all the upstream departments of the business strengthened Renault's position as national leader in this have now been reconfigured according to the same prin- segment. From March 1999, Turkey will serve as the exclusive ciples. Those principles are: export base for the Mégane station wagon.

- systematize the way projects and functions are carried out GbF Ch 2-14/31 Angl.exe 28/04/99 7:09 Page 29

In Brazil, the first Scenics were marketed in March 1999. with another brand name, since Renault would ultimately Renault announced that it would build an engine plant at the have Dacia produce a vehicle designed to sell for less than Curitiba site with the aim of meeting 80% of the engine USD 6,000 in local and emerging markets. requirements of the Mercosur plants starting the year 2000. The Finance Division is also participating in Renault's inter- Renault also made further progress in extending its local national development by establishing partnerships in Eastern sales network. Europe and Mercosur. In Argentina, the Córdoba plant underwent a significant Renault currently has little presence in Asia, but the Group is equipment upgrade, and a program to reduce costs by 30% watching this part of the world attentively and will explore in three years is under way. any opportunities that might arise. On January 13, 1999 Brazil's central bank abandoned its floating exchange-rate regime, with the result that the Brazilian currency declined by about 40% in the space of a few days. This decline will be reflected in Renault's shareholders' equity by a correction to the currency translation adjustment.

In view of the crisis in Russia, Renault made no significant financial commitment in that country and is again reviewing the timetable for the Mégane assembly project with Moscow City officials, so that the timetable takes better account of the country's true situation.

In December 1998, Renault signed a memorandum with Romanian authorities and the state ownership fund, establishing the framework for negotiations that may lead to Renault acquiring a 51% stake in Dacia, a Romanian automobile manufacturer. This acquisition would provide the Group GbF Ch 2-14/31 Angl.exe 28/04/99 7:09 Page 30

30 MAIN LINES OF DEVELOPMENT IN 1998

RENAULT AND THE EURO Renault employees in the euro zone have been familiarized with the new currency since 1998 via in-house communica- To be ready for the euro, Renault began extensive prepara- tion and training. For information purposes, pay slips have tions as early as 1996. Virtually every area of the business — shown the euro value of net wages since January 1999. sales, marketing, advertising, purchasing, accounting, administration, finance, information systems — is affected by the By the end of the transitional period (year-end 2001), all switchover to the European single currency. information systems — accounting, administration, planning, budgeting, costing, payroll, etc. — will have been switched A project structure was established at the corporate level. over to the euro. From January 1, 2002, Renault will use the Each department and subsidiary has appointed a coordinator euro exclusively. responsible for organizing the necessary planning, coordinating the work to be done and monitoring the implementation To minimize adaptation costs, the switchover to the single cur- plans to adapt that sector's operations to the euro. rency has been incorporated into the systems renovation projects already planned by Renault for the 1999,-2002 period. Upstream, a lean project management team orchestrates the collective effort by tracking the projects, coordinating between the departments and subsidiaries, and communicating internally and with the outside world. This mode of organization has the advantage of cutting across all sectors of the Group, making it possible to identify and implement common solutions, harmonize timetables and minimize adaptation costs. RENAULT AND THE MILLENIUM BUG The project team leads a steering committee composed of all Owing to the broad scope and diverse nature of its implica- the coordinators from the departments and subsidiaries. The tions, Year 2000 (Y2K) compliance constitutes a project of committee meets every two weeks to define strategies and the highest importance throughout the Group. Renault has coordinate planning and implementation work. therefore implemented a structured approach to detecting In addition, a plenary committee, composed of senior mana- and systematically dealing with Y2K risks in all areas of its gers from the major functional units of the different divisions business. and chaired by Mr Shemaya Lévy, Executive Vice President Starting in early 1995, measures were taken to ensure that of the Renault Group, meets at the request of the project new information systems would be capable of handling post- management team to approve all important decisions. 31/12/99 dates without a problem. To deal with existing sys- Effective in January 1999, the Group is able to express all tems, multidisciplinary working groups were established in communications with the outside world in euros. 1996 to work out and document a practical methodology – Customers: prices are displayed in both the domestic cur- based on prevention. This effort led to the formation of a rency and euros, and sales of good and services (including Groupwide network, with a "Year 2000" manager at each site financial services) are invoiced in the currency of the custo- and a correspondent in each function. This mode of organiza- mer's choice. tion makes it possible to check compliance by all the automa- – Suppliers: the Group is able to issue orders to, receive ted equipment and software programs in daily use at Renault's invoices from, and pay its foreign suppliers in euros. In June manufacturing facilities, marketing locations and technical 1999 this option will be extended to all suppliers. centres. – Financial community and shareholders: financial reporting It is also essential for Renault to ensure continuity of supply is in euros and French francs. by averting possible failures at its suppliers. Supplier Y2K GbF Ch 2-14/31 Angl.exe 28/04/99 7:09 Page 31

OUTLOOK FOR 1999 31

issues are being handled mainly in cooperation with PSA In 1999, the Automobile Division should continue to improve Peugeot-Citroën using the services of GALIA, the logistical its sales performance in a total European market of close to data interchange association for the automobile industry. 13.8 million units. The trend in the French market should be Surveys have been sent out with questionnaires on methodo- positive with total sales of two million vehicles. But declines logy, and the response rate has been high. Lastly, Renault is are likely in the United Kingdom and Italy, where downturns conducting audits of some twenty suppliers identified as are already in evidence. being "at risk" to determine how they are handling the Year Outside Europe, present forecasts for passenger car markets 2000 rollover. indicate that total sales will decline significantly in Turkey As for the vehicles themselves, recent models have on-board and even more so in the Mercosur, where Renault is never- electronic calculators that reckon in terms of elapsed time theless expecting to improve its market share. rather than absolute date. They therefore pose no risk of The capacity of Renault to make progress commercially can be malfunction. The few equipment items that do keep track of attributed to a line of innovative products which have become an absolute date have been designed to take the Year 2000 the benchmark in numerous segments. In addition, Renault's rollover into account. products are increasingly competitive, due to the continuous Renault's Y2K project is following the established timetable. improvements being made in industrial operations, under the System cutovers will take place through August 1999. The stimulus of the goals set for the cost-reduction program. 1999 holiday period will be devoted in particular to validating The markets for commercial vehicles will probably show system integrity and implementing special procedures to cross-currents in 1999: growth in France and Spain, but more make final checks at all sites just before and just after the or less significant declines in most of the other European rollover, as well as to take care of any remaining problems. countries, as well as in the United States. This situation will The costs of work related to the Year 2000 rollover amount to lead the Commercial Vehicles Division to place even more FRF 490 million and affect expenses reported in 1998 and emphasis on its campaign to lower costs. 1999. The Finance Division should show activity comparable to that of last year.

In this environment, which will be marked by increasingly intense competitive pressures as well as the additional costs of the Group's international expansion, Renault will maintain its policies calling for discipline and a continuing stress on growth, with the objective of strengthening financial results in all of its Divisions.

In 1999, in a less buoyant climate than that prevailing in 1998, Renault expects to show an operating margin in line with its objective of achieving 4% of revenues on average over a business cycle.

❋❋❋

Renault is now convinced of the merits of a strategic alliance with Nissan. Consequently, Renault offered to start exclusive negotiations with Nissan on March 16, 1999, with a view to establishing a strategic alliance between the two groups, which would in particular involve Renault acquiring an equity stake of approximately 35% in the capital of Nissan, in the form of a reserved increase in capital. Nissan has informed Renault that its offer would be examined at a Board of Directors’ meeting on March 27, 1999. (Statement issued on March 19, 1999) Gb Ch 2 -1/19 Angl.Eur.exe 28/04/99 7:27 Page 2

II. Renault in 1998

2 REVENUES

In 1998 almost all European car markets — France's in parti- Against a backdrop of renewed economic growth, the trend in cular — experienced significant growth. Renault was the princi- all Western European markets was highly positive. The pal beneficiary of this recovery, with automobile sales growing European market as a whole recorded rises of 7.1% for pas- twice as fast as the European market. It was a year of suc- senger cars and 11% for light commercial vehicles. The mar- cess for all Renault car models, especially for the Mégane, ket for heavy-duty trucks in Europe increased by 19.9% for which became the second best-selling car in Europe, and also vehicles over five tons and by 22% for vehicles over 16 tons. for the Espace and Kangoo, each of which took the sales lead The North American Class 8 market was also up, with a gain in its category(1). Combined with the Group's ongoing cost- of 20.4%. During 1998, Renault's unit sales increased in eve- cutting program, these successes reinforced the profitability ry geographical market. In all, worldwide sales of Renault of the Automobile Division. In the Commercial Vehicles automobiles were up 15.8% over 1997, to 1,864,333 passen- Division, sales increased at both Mack and the European ger cars (+14.5%) and 264,306 light commercial vehicles branch in a context of expanding markets. Renault V.I., also (+26%). Truck sales at Renault V.I. followed the same trend, involved in a program to reduce costs, continued to improve with the European branch selling 46,017 vehicles over five its operating margin. The contribution to operating margin tons (+23.3%) and Mack 34,671 heavy trucks (+15.5%). from the Finance Division was virtually unchanged from 1997. Adjusted for changes in the scope of consolidation and Overall, the Group's profits increased significantly. accounting methods, these increases in unit sales resulted in Renault's main strategies for improving competitiveness and revenue rises of 16.5% for the Automobile Division and 17.7% profitability even further are the ongoing renewal of its pro- for the Commercial Vehicles Division. Group sales amounted duct range with innovative new models, reorganization of to 37,187 million euros, compared with 31,696 million euros in manufacturing facilities, constant efforts to cut costs, more 1997. On a comparable structure basis, consolidated reve- effective organizational structures and strengthened inter- nues were up 16.2%. national presence.

All rankings and market data cited in this document are taken from statistics of the Comité des Constructeurs Français d'Automobile (CCFA), supplemented by internal Renault statistics.

Revenues by Division 1996 1997(1) 1997(2) 1998 1998/1997(2) millions % millions % millions millions % % of euros of euros of euros of euros Automobile 22,252 79.3 25,274 79.8 25,533 29,739 80.0 +16.5 Commercial Vehicles 4,575 16.3 5,211 16.4 5,262 6,192 16.6 +17.7 Finance 1,236 4.4 1,211 3.8 1,211 1,256 3.4 +3.7 Total 28,063 100.0 31,696 100.0 32,006 37,187 100.0 +16.2

(1) Reported. (2) For purpose of comparison, the 1997 figures have been restated to reflect the same scope of consolidation and accounting methods as in 1998. The main adjustments involve changes in the method of consolidation for Renault Argentina (275 million euros) in the Automobile Division and Heuliez Bus (53 million euros) in the Commercial Vehicles Division. Gb Ch 2 -1/19 Angl.Eur.exe 28/04/99 7:27 Page 3

The Finance Division, which is fully consolidated, contributed 1,256 million euros to revenues, up 3.7% from 1997. This amount corresponds almost entirely to sales financing revenues. Finance receivables increased by 11.7% to 10.9 billion euros. Breakdown of Revenues: France/Foreign As a % 1996 1997 1998 France Foreign France Foreign France Foreign Automobile 47.2 52.8 40.5 59.5 39.4 60.6 Commercial Vehicles 38.3 61.7 32.3 67.7 33.3 66.7 Finance 53.8 46.2 48.5 51.5 45.7 54.3 Total 46.1 53.9 39.4 60.6 38.6 61.4

Revenues in France made up 38.6% of the total. Revenues outside France increased by 18.9% to 22,833 million euros (61.4% of the total), showing the progress of the group's international development.

Geographical Breakdown of Revenues 1996 1997 1998 millions % millions % millions % of euros of euros of euros France 12,925 46.1 12,497 39.4 14,354 38.6 Other EU countries 10,447 37.2 13,006 41.1 15,496 41.7 Total EU 23,372 83.3 25,503 80.5 29,850 80.3 Rest of Europe 1,055 3.7 1,176 3.7 1,393 3.7 Total EUROPE 24,427 87.0 26,679 84.2 31,243 84.0 Africa 432 1.5 453 1.4 501 1.3 North/South America 2,261 8.1 3,341 10.5 4,149 11.2 Asia/Pacific 943 3.4 1,223 3.9 1,294 3.5 Total 28,063 100.0 31,696 100.0 37,187 100.0

4 RESULTS

OPERATING MARGIN

This year's presentation of the Group's financial results introduces the notion of "operating margin" to give a more detailed picture of Renault's level of performance. Operating margin corresponds to operating income before "other operating income and expenses" as detailed below. Contribution to Operating Margin by Division In millions of euros 1996 1997 1998 1st half 2nd half Year 1st half 2nd half Year Automobile (342) 6 358 364 740 805 1,545 Commercial Vehicles (93) (35) 27 (8) 82 89 171 Finance 195 118 89 207 118 86 204 Total (240) 89 474 563 940 980 1,920

The Group's operating margin was 1,920 million euros in 1998 Under this definition, "other operating income and expenses" in (compared with 563 million euros in 1997 and a negative 240 1998 constituted a net expense of 268 million euros, an increa- million euros in 1996), or 5.2% of revenues. The very sharp se of 5.5% from 1997. For comparison, this item amounted to increase from 1997 is attributable in particular to the 254 million euros in 1997 and 673 million euros in 1996. The lar- Automobile Division, whose contribution rose from 364 million gest component was restructuring costs and provisions, at euros in 1997 to 1,545 million euros in 1998. This 1,181 million 244 million euros in 1998 (versus 235 million euros in 1997 and euro increase is explained by growth in unit sales in all final 595 million euros in 1996). These charges concerned mainly markets as well as the effects of the manufacturing reorganiza- the manpower plan in Argentina, the shutdown of a French tion and the cost reduction program. The Commercial Vehicles subsidiary, Emboutissage Tôlerie Gennevilliers, and the restruc- Division also kept its contribution rising on the strength of turing of the sales network in France. increased unit sales in all markets, higher selling prices in the United States and positive effects from cost-cutting programs OPERATING INCOME in Europe and the United States. Its contribution to the opera- The definition of operating income is unchanged. ting margin was 171 million euros, up from a negative 8 million After recognition of other operating income and expenses, euros in 1997. The Finance Division provided a contribution of Group operating income was 1,652 million euros in 1998, 204 million euros, compared with 207 million euros in 1997. compared with 309 million euros in 1997 and an operating Research and development expenses increased by 12.7% bet- loss of 913 million euros in 1996. The Automobile Division ween 1997 and 1998, reaching 1,553 million euros and 4.2% of increased its contribution from 137 million euros in 1997 to revenues. For comparison, R&D expenses were 1,378 million 1,282 million euros in 1998, while the Commercial Vehicles euros in 1997 and 1,391 million euros in 1996. Sales, general and Division swung from an operating loss of 29 million euros in administrative expenses amounted to 4,435 million euros, com- 1997 to an operating profit of 136 million euros. The Finance pared with 4,181 million euros in 1997. Division's contribution to operating income increased by 16.7% to 234 million euros. The decline from the first half of Operating income is derived from operating margin by taking 1998 to the second is explained by a 47 million euro profit into account other operating income and expenses, which corresponding to a tax refund in the UK in the first half and consist of: by the impact of the manpower plan at DIAC in the second • restructuring costs and provisions, half. •gains and losses on disposals of tangible and intangible long- term assets (excepting sales of vehicles), • gains and losses on transactions in securities representing investments in operating activities (notably, disposals and amortization of goodwill), • items of an unusual nature or of an abnormally high amount. Gb Ch 2 -1/19 Angl.Eur.exe 28/04/99 7:27 Page 5

Contribution to Operating Income (Loss) by Division 1996 1997 1998 (In millions of euros) 1st half 2nd half Year 1st half 2nd half Year 1st half 2nd half Year Automobile (139) (859) (998) (25) 162 137 648 634 1,282 Commercial Vehicles 4 (111) (107) (33) 4 (29) 78 58 136 Finance 100 92 192 113 88 201 165 69 234 Total (35) (878) (913) 55 254 309 891 761 1,652

Decisions to set aside provisions for restructuring are usually The internal Group agreement on assignment of head office recorded in the second half. This explains the decrease in ope- expenses was revised in 1998. Figures for the two prior rating income in the Automobile and Commercial Vehicles years, 1997 and 1996, have been modified accordingly. Divisions in the latter part of the year. RENAULT NET INCOME FINANCIAL INCOME As provided for under the Group's tax consolidation regime, Net financial items were positive at 60 million euros in 1998, which was renewed on January 1, 1998 for a period of three compared with 308 million euros in 1997 and 49 million euros years, Renault determines its tax liability by including the in 1996. Financial income in 1997 included 252 million euros of taxable income of most of its subsidiaries and affiliates and gains on the disposal of Elf Aquitaine and AB Volvo securities. offsetting against this amount certain taxes paid by the same subsidiaries and affiliates. SHARE IN NET INCOME OF COMPANIES ACCOUNTED In 1998, with Renault no longer benefiting from tax loss car- FOR BY THE EQUITY METHOD ry-forwards, current taxes represented an expense of 677 million euros, compared with 147 million euros in 1997. After Renault's share in net income of companies accounted for by a final 295 million euro reversal of the provision for deferred the equity method represented a loss of 13 million euros, tax assets (compared with 229 million euros in 1997), net tax attributable mainly to the Turkish marketing subsidiary. For expense for the year came to 362 million euros (compared comparison, this item represented income of 7 million euros with net tax income of 205 million euros in 1997). in 1997 and 3 million euros in 1996. After deduction of this tax expense and negative minority GROUP PRE-TAX INCOME interests of 12 million euros, Renault's net income amounted to 1,349 million euros in 1998, an increase of 522 million Group pre-tax income amounted to 1,699 million euros, com- euros from 1997 (827 million euros). pared with 624 million euros in 1997 and a loss of 861 million euros in 1996. The contributions of the various Group divisions are given in the following table. Contribution to Pre-Tax Income (Loss) by Division 1996 1997 1998 Change In millions of euros 1998/1997 Automobile (983) 300 1,307 +1,007 Commercial Vehicles (141) (24) 90 +114 Finance 263 348 302 -46 Total (861) 624 1,699 +1,075 Gb Ch 2 -1/19 Angl.Eur.exe 28/04/99 7:27 Page 6

6 CASH FLOW

Cash Flow Statement (In millions of euros) 1996 1997 1998 Cash flow 1,055 2,104 3,098 Decrease in working capital requirement 430 601 1,449 Increase in finance receivables (201) (930) (1,300) Cash flows from operations 1,284 1,775 3,247 Property, plant and equipment and intangibles (2,499) (2,359) (2,205) Asset disposals and other 468 942 440 Cash flows from investments (2,031) (1,417) (1,765) Proceeds from shareholders 26 74 28 Dividends paid (123) (19) (159) Net change in debt 410 37 (1,793) Cash flows from financing activities 313 92 (1,924) Change in cash and cash equivalents (434) 450 (442)

CASH FLOWS FROM OPERATIONS Vehicles Division (6.8%) and 169 million euros for the Finance Division (7.7%). The investments of the manufacturing and Operations generated 3,247 million euros in cash in 1998, sales companies are devoted primarily to renewing product compared with 1,775 million euros in 1997. and component lines and modernizing production facilities. Cash flow (net income plus depreciation and provisions) The investments of the finance arm consist essentially of increased by 994 million euros, rising from 2,104 million euros vehicles on lease. In all, tangible and intangible investments in 1997 to 3,098 million euros in 1998, owing mainly to impro- net of disposals amounted to 1,808 million euros, compared ved operating conditions in the two manufacturing and sales with 1,965 million euros in 1997 and 2,148 million euros in divisions. The working capital requirement decreased by 1,449 1996. million euros in 1998 (compared with a decrease of 601 million Investments in securities net of cash acquired thereby euros in 1997), owing notably to an increase in trade notes amounted to 67 million euros in 1998, compared with 124 mil- and accounts receivable related to the higher level of activity. lion euros in 1997. Disposals of investments in affiliates In addition, sales-financing receivables increased by 1,300 amounted to 63 million euros, compared with 687 million million euros in 1998. euros in 1997, and served to decrease outflows of cash associated with investments. CASH FLOWS FROM INVESTMENTS

Investments consumed 1,765 million euros in cash in 1998, compared with 1,417 million euros in 1997.

Capital expenditure (property, plant and equipment and intangibles) decreased by 6.5% to 2,205 million euros. This amount breaks down as 1,885 million euros for the Automobile Division (85.5%), 151 million euros for the Commercial Gb Ch 2 -1/19 Angl.Eur.exe 28/04/99 7:27 Page 7

Investment (tangible and intangible assets and securities) 1996 1997 1998 1998/1997 millions % millions % millions % % of euros of euros of euros By division Automobile 2,138 82.2 2,080 83.7 1,926 84.8 –7.4 Commercial Vehicles 231 8.9 169 6.8 165 7.2 –2.3 Finance 230 8.9 234 9.5 181 8.0 –23.0 Total 2,599 100.0 2,483 100.0 2,272 100.0 –8.5 (1) The distinction By geographic market (1) between France and Outside France is made on France 2,176 83.8 1,874 75.5 1,505 66.2 –19.8 the basis of where the Outside France 423 16.2 609 24.5 767 33.8 +26.1 company making the investment is established. Total 2,599 100.0 2,483 100.0 2,272 100.0 –8.5 By type Property, plant and equipment and intangibles 2,499 96.2 2,359 95.0 2,205 97.1 –6.5 Securities 100 3.8 124 5.0 67 2.9 –46.4 Total 2,599 100.0 2,483 100.0 2,272 100.0 –8.5

CASH FLOWS FROM FINANCING Investment loans and marketable securities increased by ACTIVITIES 2,319 million euros in 1998. For comparison, this item decreased by 1,699 million euros in 1997. Financing activities generated a cash requirement of 1,924 In 1998 Renault distributed a dividend of 0.53 euro per share million euros in 1998, compared with a cash inflow of 92 mil- for the year ended December 31, 1997. The total amount paid lion euros in 1997. These cash flows consisted of bond issues out to shareholders (before elimination of treasury shares) and redemptions; the net change in other borrowings, marke- was 127 million euros. In 1997 no dividend was distributed table securities and investment loans; capital contributions relative to 1996. from minority interests and payments of dividends. Repayments of bonds and other borrowings, net of new issues, generated a requirement of 526 million euros. In April 1998, Renault issued 76 million euros in bonds indexed to the price of Renault shares, and Renault Crédit International (R.C.I.) issued bonds in the amount of 153 million euros (in Deutschmarks), or slightly more than FRF 1 billion.

FINANCIAL POSITION

Shareholders' equity increased from 6,695 million euros on to 6.1% of revenues. The net indebtedness of the industrial December 31, 1997 to 7,861 million euros on December 31, and commercial activities, which had amounted to 319 million 1998 as a consequence of the 1998 financial results. euros, was entirely eliminated as a result, shifting to a net creditor position of 1,929 million euros on December 31, 1998. Operations generated cash flow of 3,098 million euros in 1998, and the Group lowered its level of investment slightly Gb Ch 2 -1/19 Angl.Eur.exe 28/04/99 7:27 Page 8

8 RESEARCH AND DEVELOPMENT

Research and Development Expenses and a top speed of 120 kph. The project has enabled Renault by Division to acquire invaluable know-how for developing future produc- (In millions of euros) 1996 1997 1998 1998/1997 tion vehicles powered by fuel cells. % 3/ Fuel Economy Automobile 1,210 1,237 1,408 +13.9 In the area of engines, the new Renault 16-valve and dTi units Commercial Vehicles 181 141 145 +2.6 introduced in 1998 reduced fuel consumption by 15%. Work Total 1,391 1,378 1,553 +12.7 along this line is now focusing on direct-injection gasoline engines, the new Turbeco turbocharger, common rail high- In 1998 the Group spent 1,553 million euros on research and pressure injection systems for diesel engines and the new development, compared with 1,378 million euros in 1997 and systems of treating exhaust gases that will appear on pro- 1,391 million euros in 1996. These expenses relate to resear- duction vehicles in 1999 and 2000. Another system under ch, studies and development of vehicles, components and development is the robotized gearbox (made from a manual production technologies. This activity gave rise to the filing gearbox actuated by an automated electrohydraulic system), of 267 patents in 1998, compared with 230 in 1997. which will help to improve a vehicle's overall fuel economy. Research and development focused on five major areas in In parallel with these efforts, the multi-disciplinary "Frelon" 1998: project seeks to reduce excess fuel consumption due to fric- 1/ Extension of the Product Range tion. By working on tires and rolling resistance (in cooperation with tire makers and SNR) and on brakes, "Frelon" At the Paris Motor Show, Renault unveiled "Vel Satis", a luxury achieves a gain in fuel economy and a simultaneous improve- four-seater coupe of avant-garde concept and design that ment in braking efficiency. An initial application of the sys- features sophisticated but unobtrusive technology (on-board tem will appear on the Scenic in 1999. telematics) to enhance driving enjoyment. A car that meets traditional top-of-the-range standards while reflecting crea- 4/ Safety tive, forward-looking design and uniquely French refinement, In 1998 Renault applied the results of its latest research on "Vel Satis" reveals the spirit of Renault's future top-of-the- structural compatibility in collisions between large and small range models. vehicles to the Clio II and Twingo 2. These two new models 2/ Environmental Protection now offer a high level of safety even in collisions involving a much heavier vehicle. As a defender of the values of personal mobility within a comprehensive vision of the transport system, Renault is taking Several major innovations in passive safety were also intro- multiple initiatives to assure an integral place for the automo- duced gradually throughout the product range. The first is bile while protecting the environment. The multi-energy the Renault System for Restraint and Protection for front- Scenic family, whether equipped with traditional power plants end collisions. In addition to seat belt pretensioners, the sys- (gasoline/diesel/LPG) or clean-break technology (NGV, elec- tem includes load limiters and the new programmed restraint tric, hybrid), illustrates this determination to reduce fuel airbags. Working together for greatest effectiveness, these consumption, and thereby carbon dioxide emissions, as well two systems developed by Renault can halve the forces exer- as emissions of pollutants such as nitrogen oxides, hydrocar- ted by the seat belt during a crash. Complementing these bons and carbon monoxide. safety features is the new close-contact head restraint, which can reduce the number of minor injuries from rear-end colli- The Fever project, which Renault is conducting in coopera- sions by 35%. In the event of side impact, Renault has intro- tion with five European partners (Air Liquide, Ansaldo, De duced a combined head/chest lateral airbag. Nora, Paris's Ecole des Mines and Volvo TD), is aimed at acquiring knowledge in the engineering and use of fuel cells Applying its expertise in passenger safety, Renault has deve- as an automotive power source. This objective has been loped the new Isofix child restraint system, engineered to achieved, since the prototype Fever has a range of 400 km adapt to the morphology of children's bodies. It can be posi- Gb Ch 2 -1/19 Angl.Eur.exe 28/04/99 7:28 Page 9

WORKFORCE AND HUMAN RESOURCES

With an objective of 2 million hours devoted to training, or an ments, the new one is a framework agreement. It will give average of 43 hours per person, the training plan represents rise in coming months to negotiations at two levels. an investment of nearly 76 million euros, or 5% of the payroll. – at company level, an amendment to the framework agreement will be negotiated with the aim of giving all employees The 1998 plan called primarily for: a stake in Renault's financial results. • enhancing job skills (36% of training hours), – at the establishment (job site) level, local agreements will • anticipating changes by preparing employees for retraining be negotiated to recognize performance at each site and and mobility assignments (30% of hours), take account of its specific characteristics. • increasing management skills (13% of hours). The profit-related bonus paid on April 10, 1998 to employees of In addition, training in new technologies (7% of total contact the Renault parent company in respect of 1997 financial results hours) was provided to support start-ups of new industrial was 47 euros for each 152 euros of base monthly salary, with a processes and new model launches. As part of Renault's minimum payment of 382 euros. international development, 6% of hours were devoted to lan- guage training. In accordance with legal requirements or special dispensa- tions, profit-sharing agreements were signed in all the princi- A new agreement on employing differently-abled persons pal companies of the Group. was signed in 1998 by management and all the unions. The main provisions concern employment, hiring and training, Profit-related bonus schemes were also implemented in the and accommodation during employment. Renault maintains principal companies to give employees a stake in the compa- its objective of having the differently-abled make up at least ny's profits, progress and achieved performance, in particular 2% of annual new hires in engineering, commercial and admi- in the area of quality. nistrative positions. As regards procurement from the shel- For the Renault parent company, the amounts involved, equal tered sector, Renault commits to maintaining the flow of to 5% of consolidated income before tax (and before profit- business at the level of recent years (which is equivalent to related bonuses) plus site performance bonuses, were as fol- direct employment of 120 differently-abled persons). Other lows over the past five years: provisions cover hiring and training, both internally and in (In millions of euros) support organizations for the differently abled, and assuring suitable positions and work schedules for these persons. 1994 57 1995 44 WAGES AND PROFIT-SHARING 1996 33 1997 64 The average wage increase for production workers and non- managerial staff was 2.8% in 1998, while inflation remained 1998 120 at a subdued annual pace of about 0.3%.

Renault management has entered into an agreement with five labour unions (CFDT, CFTC, FO, CFE-CGC, CSL-SIR) on profit-related bonus schemes. As with previous such agree- Gb Ch 2 -1/19 Angl.Eur.exe 28/04/99 7:28 Page 11

STOCK OPTIONS

The Board of Directors has granted stock options as follows: • On October 22, 1996, 446,250 stock options, including 64,000 reserved for senior managers of the Renault Group. These options may be exercised from October 22, 1999 until October 22,2006. • On October 28, 1997, 553,750 stock options, including 94,000 reserved for senior managers of the Renault Group. These options may be exercised from October 29, 2002 until October 27, 2007. • On October 27, 1998, 1,912,500 stock options, including 670,000 reserved for senior managers of the Renault Group. These options may be exercised from October 28, 2003 until October 26, 2008.

These grants are summarized in the table below.

Options Granted Options Remaining Date Awarded Price Number of Beneficiaries on 31/12/1998 October 22, 1996 17.57 euros(1) 273 446,250 October 28, 1997 24.89 euros(1) 310 553,750 October 27, 1998 32.13 euros(2) 410 1,912,500

12 ECONOMIC ENVIRONMENT

To our knowledge, the Group's production does not depend Fuel and Vehicle Taxes on patents or licences belonging to third parties. France has affirmed its desire for gradual harmonization of taxes on gasoline and diesel fuel. The French authorities are REGULATORY FRAMEWORK committed to a gradual realignment of the tax difference in FOR ISSUES OF SAFETY, EMISSIONS France, currently 0.22 euro per liter in favour of diesel, with AND INDUSTRIAL ENVIRONMENT the EU average, currently 0.15 euro. The rebalancing will begin in 1999 with an adjustment of 0.01 euro. For the first time in The development of automotive electronics opens new pros- several years, France's tax on premium unleaded gasoline was pects in the area of accident avoidance, and applications with unchanged. this aim were introduced in 1998. Regulatory oversight of this technological evolution has taken the form of gradual A provision of France's Finance Act for 1999 allows reimburse- definition of new safety requirements for electronic systems, ment of part of the domestic tax on petroleum products for particularly concerning braking and vehicle handling. commercial vehicles over twelve tons.

As regards environmental issues, the emissions reduction At the same time, the legislature has consolidated the various requirements for light and heavy vehicles in the years 2000 tax incentives for clean vehicles, notably LPG vehicles, and and 2005 have now been set. In addition to significant cuts extended them to include dual-fuel vehicles. in allowed levels of emissions, the requirements call for a Taxation in Europe system of continuous monitoring of the vehicle's emission control system (On-Board Diagnostic or OBD system) as well The European Union continues to be notable for wide dispari- as increased durability and verification of compliance by ties in taxes applicable to motor vehicles. These disparities are vehicles in service (COPIS). For the first time, these stages in attributable to the lack of convergence in VAT rates and the automotive emissions reduction establish a clear link bet- maintenance of specific taxes on vehicle purchases in many ween vehicles and fuels. European countries. With the introduction of the euro, the per- sistence of these disparities continues to raise problems. Fuel Consumption and CO2 Emissions Designs and Models An agreement on the automobile industry's contribution to reducing emissions of greenhouse gases was concluded in In 1998 European Union institutions ended their examination 1998 between European car makers and EU authorities in of the designs and models directive that had been under Brussels. This agreement sets an overall target for carbon review since 1991. For the automotive industry, the directive dioxide emissions of new cars sold in Europe in 2008 at 140 governed the legal protection applicable to visible parts of g/km, which corresponds to fuel consumption of 5.9 l/100 the bodywork. Each member state is free to maintain the (liters per 100 kilometers) for gasoline and 5.3 l/100 for diesel. same protection for a further period, which will range in The Buenos Aires conference on global warming in November practice from five to seven years. 1998 highlighted the commitment of Europe and its industry to Recycling of End-of-Life (EOL) Vehicles reduce emissions of greenhouse gases. This conference also confirmed quantified targets for greenhouse gas reduction by Renault continues to implement the framework agreement on the principal countries and identified the main policy instru- EOL recycling that was worked out with the French govern- ments for achieving them. ment and the operators of the subsidiaries. In 1997 approximately 110,000 Renault EOLs were processed and 83.7% of vehicle weight was recycled. Gb Ch 2 -1/19 Angl.Eur.exe 28/04/99 7:28 Page 13

Renault has set up a subsidiary to market refurbished OEM parts through its dealer network.

Litigation

At present there is no litigation in progress that might have a material effect on the profits, activity, assets or financial position of the Renault Group. Gb Ch 2 -1/19 Angl.Eur.exe 28/04/99 7:28 Page 14

14 MAIN LINES OF DEVELOPMENT IN 1998

In 1998 Renault pursued its three-pronged strategy of profi- a coach suited for both scheduled transport service and tou- table growth based on innovation, competitiveness and inter- rist excursions, and Agora Line, a bus designed for suburban national development. This strategy is aimed at making transit routes. In heavy-duty trucks, noteworthy new pro- Renault a top player in the world automobile industry, produ- ducts included the 400-horsepower version of the Premium cing four million vehicles a year by 2010 with half of that out- Long Distance, a new version of the Kerax, the innovative put outside Western Europe. Single concept for the outfitting of the cab on the Premium Long Distance Privilège, and the Kerax Route, specially adap- Innovative Product Range ted for the international market. In the United States, Mack Renault's commercial success rests on its range of products prepared for the February 1999 launch of the Vision, desi- and its ability to anticipate trends in lifestyles. The Group gned for long-distance hauling. must keep designing ever more innovative vehicles that are Enhanced Competitiveness not only attractive to customers but also safer, cleaner and more keenly priced. In the Automobile Division, the 1997 plan to cut costs by 3 billion euros (relative to the 1997 budget) by the year 2000 In automobiles, after successfully launching the Kangoo in has the following main elements: October 1997 and the Clio II in April 1998, Renault completed • reduce purchasing costs by roughly 1.5 billion euros; the overhaul of its offering in the small-car segment by • reduce the manufacturing cost at powertrain and assembly unveiling the Twingo 2 at the Paris Motor Show in October plants by raising capacity utilization rates and improving pro- 1998. Like the Clio II, the Twingo 2 offers a superior specifi- ductivity; cation and a higher level of safety at a lower selling price • cut the cost of designing and developing new vehicles; than its predecessor. • reduce distribution costs; The Mégane family was enlarged in September 1998 with an • achieve cost savings in other areas such as administrative estate version, launched in Turkey and then marketed in overheads, purchasing logistics for spare parts, fixed costs in Europe starting in March 1999. Besides a new design, greater marketing, etc. value for money in terms of equipment and even more effec- The plan is on schedule. In 1998, 1.4 billion euros in cost tive safety features—which earned it the top ranking in its savings were achieved based on a constant level of activity segment during crash tests performed in 1998 by Euro NCAP, (using a measuring technique for isolating the impact on per- an independent European testing organization—the new formance when output levels change). The reduction in pur- Mégane innovates by offering Europe's first direct-injection chasing costs was 8%, in line with targets set for full-year gasoline engine. 1998 despite a tight supply situation that did not favor the With its new range of 16-valve gasoline and direct-injection division in negotiations with suppliers. Furthermore, the diesel engines, Renault has stepped up the pace in renewing reduction in internal costs, achieved through both productivi- its powertrain components (engines and transmissions), in ty gains on site and overall rationalization of production faci- line with its objective of being among the world's best in this lities, exceeded plan targets, supplementing the favorable domain by the year 2000. effects of greater volume in 1998.

Renault has also affirmed its determination to remain in the To accelerate cost reductions in areas with high potential but upper segments of the market by offering original concepts requiring new approaches, eight cross-company teams were and taking advantage of lower development costs. The March set up in May 1997. Made up of operating personnel from the 1999 debut of the Avantime concept car at the Geneva Motor various units and disciplines involved, each team seeks out Show paves the way for the "Coupéspace". Avantime fore- and implements breakthrough solutions with expected gains shadows the innovative architecture of the vehicle being of 30% on average within 12 to 18 months. By the end of developed under a partnership agreement with Matra 1998 the teams had achieved significant results, and the Automobile, a coupé that will be launched in 2000. objectives have been or will be attained in the different domains that have been explored. Among these teams, the In commercial vehicles, Renault V.I. made two important pro- "Standardization" team, whose task was to reduce the diver- duct launches in its coach and bus range in late 1998: Ares, sity of outsourced components on the Mégane by 30%, has Gb Ch 2 -1/19 Angl.Eur.exe 28/04/99 7:28 Page 15

The effort to take out costs will continue after the year The Curitiba plant, designed to assemble vehicles under 2000, and Renault is already drawing up the objectives that conditions of maximum flexibility and competitiveness and will be set for that period. surrounded by its major suppliers, was inaugurated on December 4, 1998. In commercial vehicles, Renault V.I. is still pursuing its objective of moving from a recovery phase to a phase of profitable Industrial Alliances and Cooperation Agreements growth. This transition cannot be achieved without an impro- Renaults seeks maximum efficiency and worldwide scale for vement in competitiveness. The Group has therefore under- each of its businesses. taken a series of actions in this regard, with a major drive to lower costs both internally and externally. In the area of pur- In automobiles, Renault is cooperating with NTN, a Japanese chasing, this is a question of finding suppliers with worldwide components supplier, to assure a long-term future for its uni- scale, chosen for their technical expertise and financial versal joints business at the plant in Le Mans. Fiat and soundness, to become true partners of the division. Renault have pooled most of their foundry activities, which are operated via Teksid S.p.A. (wholly owned by Fiat) and AT Renault V.I. is also stepping up the implementation of syner- Systèmes (an EIG belonging to Renault). The new group has gies between its two operating units in the area of heavy- the capability to position itself as a world standard in casting duty trucks. The objective of the Convergence program is to for the automotive industry. achieve maximum sharing of components on vehicles sold in Europe and the United States within three years. Renault V.I. and Iveco have merged their coach and bus activities in a jointly owned company. This 50/50 joint venture, Manufacturing Efficiency and Responsiveness named Iris.Bus, began operations on January 1, 1999 as num- Renault has been engaged for several years in a process of ber two in its sector in the European market and one of the rationalizing and streamlining its manufacturing facilities. world's larger producers of passenger transport vehicles. The general principle is to assign a single vehicle segment to The Finance Division, via its Renault Crédit International each plant. With the Sandouville plant set to be producing a subsidiary, is also pursuing an active partnership policy that single, top-of-the-range platform in 2000, only the Flins enables it to offer an ever-broader range of sales aid pro- plant will still be operating on a dual-flow basis, simulta- ducts and establish a presence in international markets. neously producing the Twingo and the Clio II on two different 1998 saw the birth of Renault Credit Polska, in partnership assembly lines. This manufacturing system is consistent with with Poland's Bank Slaski, and Renault Leasing Cz., offspring Renault's product range plan and platform architecture. The of a joint-venture contract with CAC Leasing in Prague. three French assembly plants for passenger cars will produce the range's three platforms: top-range, midrange and entry- Effective Organizational Structures level. The two Spanish plants will produce vehicles in the Renault's competitiveness strategy, based on lowering costs, high-volume segments, i.e. Clio II and Mégane. shortening lead times and improving product and service Gb Ch 2 -1/19 Angl.Eur.exe 28/04/99 7:28 Page 16

16 MAIN LINES OF DEVELOPMENT IN 1998

quality, must be backed up by effective organizational struc- - systematize the way projects and functions are carried out tures and management tools. (program directors are given worldwide responsibility, suppliers are chosen on a worldwide basis, etc.); In research and development, the new Technocentre, inaugu- - strengthen upstream resources and promote innovation (by rated in May 1998, has two concrete objectives. One is to involving suppliers more closely); shorten the development time for new vehicles to 36 months, - optimize organizational structures by project; or 24 months for derivative models built on existing plat- - arrange for customer input to guide engineering efforts; forms, by the year 2000. This reduction is to be achieved - develop a manufacturing system equal in performance to with continued improvement in quality and in spite of the the best in the world. growing complexity of the vehicles and the increasingly strict standards they must meet. The other objective is to To meet customers' ever more demanding requirements, achieve economies of at least one billion francs on the deve- Renault has given the go-ahead to the New Distribution lopment costs of each new vehicle. Project, which aims to ensure delivery of a vehicle within two weeks from the customer's order by 2001. This strategic pro- The Technocentre has adopted an innovative architectural ject, which brings the end customer into the heart of the concept and a new form of organization in order to complete business, implies significant changes in Renault's manufactu- projects faster and more effectively. The new organization ring system, both in terms of processes, which must be made straddles traditional boundaries in two ways: more flexible and responsive, and in terms of the organiza- – across disciplines: Renault's design and development engi- tion of dealer, supplier and transport networks. neers, previously at several different sites, are now clustered together to work on a given platform. Effective January 1, 1999, Renault modified the organization – across time: the three stages in the design of a vehicle — of its regional sales departments in France to give them advanced projects, projects, prototypes — are reproduced in greater focus on the field and customer service. In a move space in the three sections of the centre, known familiarly as consistent with this decision, DIAC also chose to reorganize the Advance Precinct, the Hive and the Proto. along the same lines as the Renault network. Lastly, the With this new way of working, the 7,500 people grouped toge- sales and marketing department of Renault V.I. decided to ther at this site in late 1998 are able to carry on four or five pro- adopt a less top-heavy organizational structure in order to jects simultaneously. Some 1,000 of these people are from out- be closer to the customer and resolutely international. side the Renault Group, from component makers and suppliers, International Development which are purposely brought in very early and associated very closely with the development of new products. Internationally, Renault continued to put resources in place to increase its presence outside Western Europe. In parallel with the establishment of the Technocentre, several program management teams were set up in 1998. A process The Bursa plant in Turkey, which already makes Mégane re-engineering program was begun in both the Purchasing sedans, began production of the station wagon version. and Vehicle Engineering departments. With the reorganiza- Marketed in Turkey since September 1998, this model has tion of the Powertrain Department, which will take effect strengthened Renault's position as national leader in this during 1999, all the upstream departments of the business segment. From March 1999, Turkey will serve as the exclusive have now been reconfigured according to the same prin- export base for the Mégane station wagon. ciples. Those principles are: Gb Ch 2 -1/19 Angl.Eur.exe 28/04/99 7:28 Page 17

In Brazil, the first Scenics were marketed in March 1999. with another brand name, since Renault would ultimately Renault announced that it would build an engine plant at the have Dacia produce a vehicle designed to sell for less than Curitiba site with the aim of meeting 80% of the engine USD 6,000 in local and emerging markets. requirements of the Mercosur plants starting the year 2000. The Finance Division is also participating in Renault's inter- Renault also made further progress in extending its local national development by establishing partnerships in Eastern sales network. Europe and Mercosur. In Argentina, the Córdoba plant underwent a significant Renault currently has little presence in Asia, but the Group is equipment upgrade, and a program to reduce costs by 30% watching this part of the world attentively and will explore in three years is under way. any opportunities that might arise. On January 13, 1999, Brazil's central bank abandoned its floating exchange-rate regime, with the result that the Brazilian currency declined by about 40% in the space of a few days. This decline will be reflected in Renault's shareholders' equity by a correction to the currency translation adjustment.

18 MAIN LINES OF DEVELOPMENT IN 1998

RENAULT AND THE EURO Renault employees in the euro zone have been familiarized with the new currency since 1998 via in-house communica- To be ready for the euro, Renault began extensive prepara- tion and training. For information purposes, pay slips have tions as early as 1996. Virtually every area of the business — shown the euro value of net wages since January 1999. sales, marketing, advertising, purchasing, accounting, administration, finance, information systems — is affected by the By the end of the transitional period (year-end 2001), all switchover to the European single currency. information systems — accounting, administration, planning, budgeting, costing, payroll, etc. — will have been switched A project structure was established at the corporate level. over to the euro. From January 1, 2002, Renault will use the Each department and subsidiary has appointed a coordinator euro exclusively. responsible for organizing the necessary planning, coordinating the work to be done and monitoring the implementation To minimize adaptation costs, the switchover to the single cur- plans to adapt that sector's operations to the euro. rency has been incorporated into the systems renovation projects already planned by Renault for the 1999-2002 period. Upstream, a lean project management team orchestrates the collective effort by tracking the projects, coordinating between the departments and subsidiaries, and communicating internally and with the outside world. This mode of organization has the advantage of cutting across all sectors of the Group, making it possible to identify and implement common solutions, harmonize timetables and minimize adaptation RENAULT AND THE MILLENIUM BUG costs. Owing to the broad scope and diverse nature of its implica- The project team leads a steering committee composed of all tions, Year 2000 (Y2K) compliance constitutes a project of the coordinators from the departments and subsidiaries. The the highest importance throughout the Group. Renault has committee meets every two weeks to define strategies and therefore implemented a structured approach to detecting coordinate planning and implementation work. and systematically dealing with Y2K risks in all areas of its In addition, a plenary committee, composed of senior mana- business. gers from the major functional units of the different divisions Starting in early 1995, measures were taken to ensure that and chaired by Mr Shemaya Lévy, Executive Vice President new information systems would be capable of handling post- of the Renault Group, meets at the request of the project 31/12/99 dates without a problem. To deal with existing sys- management team to approve all important decisions. tems, multidisciplinary working groups were established in Effective in January 1999, the Group is able to express all 1996 to work out and document a practical methodology communications with the outside world in euros. based on prevention. This effort led to the formation of a – Customers: prices are displayed in both the domestic cur- Groupwide network, with a "Year 2000" manager at each site rency and euros, and sales of good and services (including and a correspondent in each function. This mode of organiza- financial services) are invoiced in the currency of the custo- tion makes it possible to check compliance by all the automa- mer's choice. ted equipment and software programs in daily use at Renault's – Suppliers: the Group is able to issue orders to, receive manufacturing facilities, marketing locations and technical invoices from, and pay its foreign suppliers in euros. In June centers. 1999 this option will be extended to all suppliers. It is also essential for Renault to ensure continuity of supply – Financial community and shareholders: financial reporting by averting possible failures at its suppliers. Supplier Y2K is in euros and French francs. Gb Ch 2 -1/19 Angl.Eur.exe 28/04/99 7:28 Page 19

OUTLOOK FOR 1999 19

issues are being handled mainly in cooperation with PSA In 1999, the Automobile Division should continue to improve its Peugeot-Citroën using the services of GALIA, the logistical sales performance in a total European market of close to 13.8 data interchange association for the automobile industry. million units. The trend in the French market should be positive Surveys have been sent out with questionnaires on methodo- with total sales of two million vehicles. But declines are likely in logy, and the response rate has been high. Lastly, Renault is the United Kingdom and Italy, where downturns are already in conducting audits of some twenty suppliers identified as evidence. being "at risk" to determine how they are handling the Year Outside Europe, present forecasts for passenger car markets 2000 rollover. indicate that total sales will decline significantly in Turkey and As for the vehicles themselves, recent models have on-board even more so in the Mercosur, where Renault is nevertheless electronic calculators that reckon in terms of elapsed time expecting to improve its market share. rather than absolute date. They therefore pose no risk of mal- The capacity of Renault to make progress commercially can be function. The few equipment items that do keep track of an attributed to a line of innovative products which have become absolute date have been designed to take the Year 2000 rol- the benchmark in numerous segments. In addition, Renault's lover into account. products are increasingly competitive, due to the continuous Renault's Y2K project is following the established timetable. improvements being made in industrial operations, under the sti- System cutovers will take place through August 1999. The mulus of the goals set for the cost-reduction program. 1999 closure period will be devoted in particular to validating The markets for commercial vehicles will probably show cross- system integrity and implementing special procedures to make currents in 1999: growth in France and Spain, but more or less final checks at all sites just before and just after the rollover, as significant declines in most of the other European countries, as well as to take care of any remaining problems. well as in the United States. This situation will lead the The costs of work related to the Year 2000 rollover amount to Commercial Vehicles Division to place even more emphasis on 75 million euros and affect expenses reported in 1998 and its campaign to lower costs. 1999. The Finance Division should show activity comparable to that of last year.

In 1999, in a less buoyant climate than that prevailing in 1998, Renault expects to show an operating margin in line with its objective of achieving 4% of revenues on average over a business cycle.

❋❋❋

III. Review of operations

32 AUTOMOBILE DIVISION

The Automobile Division makes passenger cars and light In the small-car segment, Renault has three models, the commercial vehicles. It also includes a number of industrial Twingo, Clio and Kangoo. The Clio, at the upper end of the and service companies, most of which operate in areas rela- segment, was replaced this year by the Clio II, the best-sel- ted to the automobile business. In 1998, the division's contri- ling car in France since its debut in March 1998. The Clio/Clio bution to consolidated Group revenues amounted to FRF II together ended the year with 8.6% of the French market 195,077 million, or 80% of the total. and 2.8% of the European market. The Twingo, restyled in September 1998, achieved a 1.4% market share. The Kangoo, Western Europe, Renault's largest market, accounted for a practical, non-conformist and economical car, replaces no 84.5% of total automobile sales (passenger cars and light other vehicle in the range but rather complements this inno- commercial vehicles) by volume: 34% in France and 50.5% in vative generation of "voitures à vivre" alongside the traditio- other European countries. Sales in the rest of the world, which nal sedans. At year-end 1998, Kangoo had achieved unit accounted for 15.5% of the total, were concentrated primarily sales of just over 66,000, or 0.5% of the Western European in Argentina, Turkey and Central Europe. market. With its complementary threefold offering of the In Western Europe, seven large manufacturers control rough- Clio, Twingo and Kangoo, Renault is the market leader in the ly two-thirds of the passenger car market. Renault currently small-car segment in Europe. occupies the third position behind Volkswagen and Opel, a In the lower mid-range segment, Renault launched the gain of one place from the previous year. Mégane in November 1995 in two versions, a five-door hatch- Market Share in Western Europe - Passenger Cars back and a coupé. In October 1996 the Mégane family was 1996 1997 1998 rounded out with a four-door sedan (Classic) and a monospace (Scenic) version. Once again living up to its reputation for Volkswagen 11.1% 10.3% 11.0% innovation, Renault thus broadened its monospace range, Opel 12.0% 11.6% 10.9% already represented by the Espace and the Twingo, by trans- Renault 10.1% 9.9% 10.7% posing the concept to the lower mid-range segment. The Ford 11.5% 11.1% 10.0% Scenic, voted "Car of the Year 1997" and "Import Car of the Year 1997" in Japan, instantly proved a resounding commer- Fiat 8.9% 9.5% 8.4% cial success. Production of the Mégane station wagon ver- Peugeot 7.1% 6.6% 6.7% sion began in Turkey in September 1998. The Mégane is the Citroën 4.9% 4.7% 4.7% second most widely sold car in France, with an 8.3% market

All rankings and market data in this report are derived from statistics compiled by the Comité share, and the top-selling French car in Western Europe, with des Constructeurs Français d'Automobile (CCFA), supplemented by internal Renault statistics. a 4.0% market share in 1998. It finished the year ranked second in sales in the lower mid-range segment in Western Europe.

In the upper mid-range segment, the Laguna was restyled in The same manufacturers are also present in light commer- 1998. It achieved a 1.3% market share in Europe and remains cial vehicles. With 13% of this market in Europe, Renault is the best-selling car in its segment in France, with a 3.8% the leading marque, ahead of Ford (12.7%). In the automobile market share. market as a whole, combining passenger cars and light com- In the top-range segment, Renault offers two models, the mercial vehicles, Renault ranks first with 11% of new-vehicle Safrane and the Espace. The Safrane, launched in 1992, is registrations, ahead of Volkswagen (10.8%), Ford (10.3%) and Renault's top-of-the-range sedan and proof of the Group's Opel (10.1%). determination to be present in every segment. The Espace is Renault offers a full range of models and is present in all seg- the result of a collaborative project between Renault and ments of the passenger car and light commercial vehicle Matra. Introduced in 1984, it pioneered the monospace market. Most models are available in a number of versions concept. Renault freshened its range in this segment with with different body styles, engines and equipment. new versions of the Safrane and Espace in the fall of 1996 GbF Ch 3 - 32/47 Angl.exe 28/04/99 6:57 Page 33

and the Grand Espace in January 1998. Both of these models In 1998 the Automobile Division operated more than thirty maintained their market shares in Europe, respectively 0.2% manufacturing sites in France and abroad. The principal sites and 0.4% in 1998. are listed below.

In the light commercial vehicle segment, Renault has been Flins ...... Clio II, Twingo very active, offering utility versions of its passenger cars as Douai ...... Mégane, Scenic Sandouville ...... Safrane, Laguna, Laguna Nevada well as the Express van and pickup and the Trafic and Master Maubeuge ...... Express, Kangoo lines. The latter include a wide selection of panel and flatbed Batilly ...... Trafic, Master, B80/110 trucks with load capacities from 900 kg to 1,800 kg as well Palencia (Spain) ...... Mégane as a minibus with from nine to 17 seats. A major rejuvenation Valladolid (Spain) ...... Clio II, engines of the range in the fall of 1997 introduced the Kangoo Novo Mesto (Slovenia) ...... Clio II Bursa (Turkey) ...... Renault 9/12/19, Mégane Express, replacing the Express, as well as the new Master, Córdoba (Argentina) ...... Renault 19, Clio , Mégane, Trafic voted "Van of the Year 1998". At year-end 1998, the Kangoo Curitiba (Brazil) ...... Scenic Express, the utility version of the Clio, and the Master occu- Cléon ...... Engines, transmissions, pied the top three spots in their category, with market shares aluminum castings Le Mans ...... Front/rear drive trains, of 10.2%, 9.7% and 5.3%. mechanical components, iron castings For markets outside Europe, Renault continues to produce Lorient (SBFM) ...... Iron castings some older models that have been modified for specific local The Renault Group distributes its vehicles in Europe through requirements, such as the Renault 9/12 and 19. These a primary and a secondary distribution network. The primary vehicles are no longer sold in Europe. network consists of Renault France Automobiles (in France only), Renault subsidiaries, and exclusive dealers that sell The Automobile Division's pursuit of quality and cost reduc- and service Renault vehicles in their assigned geographic tion goals is leading to significant changes in relations with territory. Renault France Automobiles, incorporated in 1997 suppliers, with partnership and cooperation arrangements to bring together the branches and subsidiaries of the French being developed well in advance of the launch of a new sales network, achieved a remarkable first step in 1998 model. Principal suppliers are thus involved from the design towards improved profitability. The transformation of the stage onwards, and some are involved in the design of an entire primary distribution network, aimed at securing its entire vehicle sub-system, not just a specific part. This long-term future and ensuring optimal levels of service quali- approach helps to reduce costs, shorten lead times and ty and customer satisfaction, continued. The secondary dis- improve quality. Working with its suppliers, Renault has also tribution is made up of Renault sales representatives and introduced just-in-time delivery procedures to reduce stock franchised retailers, also exclusive, that are generally small levels and optimize flows. Depending on the model and the businesses with commercial ties to a dealer. version, purchased components represent between 60% and 70% of the production cost of a vehicle. The Renault dealer network in France 1996 1997 1998 Europe o/w France Europe o/w France Europe o/w France Branches and subsidiaries 122 73 123 71 127 68 Dealers 2,342 401 2,340 385 2,329 376 Other sales outlets 10,016 6,390 10,770 6,326 10,787 6,171 Total 12,480 6,864 13,233 6,782 13,243 6,615 GbF Ch 3 - 32/47 Angl.exe 28/04/99 6:57 Page 34

34 AUTOMOBILE DIVISION

European Union regulations on automobile distribution allow Western Europe manufacturers, under certain conditions, to grant exclusive Following 1997's rise, the European passenger car market territorial and brand rights and prohibit the resale of their experienced sustained growth in 1998. The year ended with a products by their own distribution network to intermediaries total of 14.4 million new vehicles registered, an increase of outside that network. 7.1%, and virtually all European markets were up. Spain's car As part of the Renault Group's strategy of developing an market continued its expansion (17.4%), as did Germany's open Group, the Automobile Division has established collabo- (6%) and the United Kingdom's (3.5%). The French market rative projects and partnerships to share development costs. enjoyed a substantial recovery (up 13.5% after a 19.7% decli- Renault has entered into a number of cooperation agree- ne in 1997). Only two markets were in retreat: Italy, down ments with PSA Peugeot Citroën. The two groups have wor- 1.6% following the cessation of government incentives to buy ked together since 1966 on developing mechanical compo- new vehicles, and Norway, down 7.6%. Renault did better nents and engines at their jointly owned affiliate, Française than merely benefit from this favorable trend, since its mar- de Mécanique, and automatic transmissions at Société de ket share in Western Europe rose from 9.9% in 1997 to 10.7% Transmissions Automatiques. Matra and Renault have colla- in 1998. This rise is due to Renault's increased penetration in borated since the early 1980s on the design and manufacture all the main European markets: France, 29% in 1998 versus of the Espace. In 1998, the two companies signed a partner- 27.3% in 1997; Spain, 13.7% versus 12.9%; Portugal, 12.6% ship agreement to develop and market a new top-range versus 11.8%; United Kingdom, 8% versus 7.3%; Italy, 7.5% vehicle in 2000. Renault has also signed a number of com- versus 7%; and Germany, 6.3% versus 6.1%. mercial or industrial agreements to buy and sell components, In 1998, 1,540,565 new Renault passenger cars were registe- such as with Volvo (transmissions and engines) and Daewoo red in Western Europe, compared with 1,326,389 in 1997, an (engines), or to pool certain activities, such as with Fiat increase of 16.1%. Renault's unit sales rose sharply across all (Teksid foundries, starting in the first half of 1999). In 1996, Western European countries. In France, sales volume increa- Renault and General Motors signed a framework agreement sed by 20.6%, while in Europe, outside Renault's domestic for cooperation on light commercial vehicles. Renault and GM market, volume increased by 13.7%. Europe are jointly developing a new 2.5-2.8 ton panel van that each manufacturer will sell under a different name starting in 2000. Renault has been supplying GM Europe with Western Europe - Total Market Master 2 vehicles since 1998. Built in Batilly in France, this Passenger Cars vehicle is sold by Renault, Opel and Vauxhall under their res- (thousands) pective nameplates.

16,000

SALES 14,000

Renault Worldwide Sales of Passenger Cars and 12,000 Other countries

Light Commercial Vehicles(1) 10,000 Spain 1996 1997 1998 1998/1997 United Kingdom 8,000 as a % Passenger cars 1,571,868 1,628,236 1,864,333 +14.50% 6,000 Italy Light commercial vehicles 216,150 209,846 264,306 +25.95% 4,000 Germany Total 1,788,018 1,838,082 2,128,639 +15.81% 2,000 (1) Including Messengers under 5 tons and sales of unregistered vehicles (TT sales and sales to France government departments). 0 1991 1997 1993 1992 1995 1996 1989 1994 1990 1998 Renault's worldwide sales of passenger cars and light commer- 1988 cial vehicles in 1998 exceeded two million vehicles, at 2,128,639 units, an increase of 290,557 from 1997. GbF Ch 3 - 32/47 Angl.exe 28/04/99 6:57 Page 35

Renault in Western Europe – Passenger Cars % change in new car Renault market share Renault new car registrations % registrations Total Market(1) Renault 1996 1997 1998 1998 Total Western Europe(2) 7.1 16.1 10.1 9.9 10.7 1,540,565 of which: France 13.5 20.6 26.6 27.3 29.0 564,473 Germany 6.0 8.6 5.3 6.1 6.3 234,097 Italy –1.6 6.4 6.0 7.0 7.5 177,697 United Kingdom 3.5 13.2 6.5 7.3 8.0 180,319 Spain 17.4 25.1 13.3 12.9 13.7 163,062 Belgium-Luxembourg 14.0 25.9 11.1 9.7 10.8 52,481 Netherlands 13.6 19.3 7.2 8.2 8.6 46,924

Portugal 16.3 24.1 12.6 11.8 12.6 31,385 (1) Total market Switzerland 10.1 6.2 6.4 6.8 6.6 19,835 (2) EU, Iceland, Norway Austria 8.2 23.9 6.1 6.5 7.4 22,145 and Switzerland

The French market recovered strongly in 1998 after suffe- 13.7% in 1998, and the Mégane became that country's best- ring in 1997 from the withdrawal of government new-car pur- selling car. In Italy, Renault advanced to 7.5% of the market. chase incentives. Car sales were up 13.5% after falling 19.7% In Portugal, the Renault brand reclaimed the top spot with a the previous year. Continuing the comeback that began in the 12.6% market share. fourth quarter of 1996, Renault was the best-selling brand The European market for light commercial vehicles also posted and the best-selling manufacturer in its domestic market. Its strong growth, expanding by 11% to 1,663,000 units in 1998. market share rose from 26.6% in 1996 and 27.3% in 1997 to With 217,000 new vehicle registrations, Renault increased its 29.0% in 1998, with 564,473 new passenger car registra- market share from 11.5% in 1997 to 13% in 1998, thereby beco- tions in France. The Clio, with a market share of 8.6%, moved ming the leading make. In France, the market was up 11% in ahead of the Mégane, whose share held steady at 8.3%. The 1998 and Renault sales were up 15.7%. With 120,020 new Twingo accounted for 4.4% of new-car registrations. The vehicle registrations, Renault held 34.6% of the market. Laguna confirmed its hold on the top spot in the upper mid- These gains are attributable mainly to the renewal of the ran- range segment with a 3.8% market share. The Safrane and ge a year ago with the Kangoo Express and Master. Espace remained on top in the top-range category with respectively 0.9% and 1.4% of the French market. Renault's total new automobile registrations in Western Europe (passenger cars and light commercial vehicles) Renault stepped up the pace of its advance in Northern amounted to 1,757,565 units, an increase of 17.3% from 1997 Europe by capturing 7.1% of the market, compared with 6.7% (compared with 1.5% from 1996 to 1997). Renault was the in 1997. Renault consolidated its position as the leading leading make in this market with an 11.0% share, compared imported make in Germany with 6.3% of the market in 1998, with 10.1% in 1997. up from 6.1% in 1997, and further strengthened its position in the United Kingdom, where its penetration advanced from Central Europe 7.3% in 1997 to 8% in 1998. Renault's market share increa- In Central Europe (Poland, Hungary, Slovakia, Czech Republic sed in Belgium from 9.7% in 1997 to 10.8% in 1998 and in and Slovenia), Renault achieved renewed growth despite stiff Austria from 6.5% in 1997 to 7.4% in 1998. The Group also competition from local manufacturers. The brand's market gained ground in the Nordic countries, notably Denmark, share increased from 5.5% in 1997 to 6.1% in 1998 in passen- where Renault's share increased from 3% in 1997 to 3.7% in ger cars and from 2.9% to 4.4% in light commercial vehicles. 1998. This increase was due primarily to strong performance in the In Southern Europe Renault continued to bolster its posi- Group's two main markets in the region, Slovenia and Poland. tions. Renault strengthened its market-leading position in In Slovenia, with 21.8% of the overall automobile market, Spain, increasing its market share from 12.9% in 1997 to Renault retained its market-leading position in passenger GbF Ch 3 - 32/47 Angl.exe 28/04/99 6:57 Page 36

36 AUTOMOBILE DIVISION

cars and claimed the top spot in light commercial vehicles Renault Worldwide Production – Passenger Cars and Light as well. Commercial Vehicles – By Origin 1996 1997 1998 Rest of the World manufactured in France 976,369 1,121,970 1,373,936 Renault's sales in the rest of the world were also up sharply manufactured outside France 764,521 745,649 823,459 Total 1,740,890 1,867,619 2,197,395 to 262,386 passenger cars and light commercial vehicles in 1998, compared with 247,335 in 1997. Passenger Cars 1996 1997 1998 In the Mercosur, in market conditions that became more diffi- Superfive 16,409 - - cult as the year went on, Renault's sales increased by 19.6% Twingo 223,740 223,795 222,033 between 1997 and 1998 and its combined market share (pas- Clio 409,354 412,383 507,485 senger cars and light commercial vehicles) grew from 3.7% in Kangoo - 20,775 109,266 1997 to 5.2% in 1998. Renault remains the leading make in Renault 9 54,327 44,333 30,271 Argentina, with 18.2% of the market and unit sales of 82,160 Renault 12 19,881 22,159 20,024 Renault 19 60,780 69,137 51,300 vehicles. In Brazil, where the market contracted by more Mégane 448,539 555,707 691,384 than 21%, Renault doubled its sales from 10,694 vehicles in Renault 21 1,153 - - 1997 to 21,720 in 1998 and became the leading import brand, Laguna 225,025 205,536 220,676 even before marketing any vehicles made at the new plant. Spider 524 675 380 In Turkey, Renault's largest market outside Western Europe, Safrane 29,543 30,954 22,853 Renault increased its overall market share from 21.7% in Espace 34,109 61,065 67,061 1997 to 22.2% in 1998. Total cars 1,523,384 1,646,519 1,942,733

Light Commercial Vehicles 1996 1997 1998 PRODUCTION Express 105,895 87,251 39,151 Kangoo Express 2 16,833 85,995 Again in 1998, Renault was able to call upon the flexibility of Twingo Utility 3,287 2,664 2,701 its production system to meet demand. In 1997, the Group set Superfive Utility 296 - - about rationalizing its manufacturing facilities to achieve Clio Utility 42,416 45,457 37,533 optimal use of production capacity. Bodywork and assembly Mégane Utility 11,022 12,229 12,119 operations at the Vilvoorde plant were shut down so that Laguna Nevada Utility 185 468 75 assembly could be concentrated at Sandouville for the Espace Utility 94 - - Laguna, Flins for the Twingo, Douai and Palencia for the Trafic 43,998 39,333 30,421 Mégane, and Flins, Valladolid and Novo mesto for the Clio. Master 10,311 7,717 - Beginning in 1997 and continuing throughout 1998, Renault Master 2 - 9,148 46,667 has operated a third shift at its body assembly plants and Total LCV 217,506 221,100 254,662 implemented other appropriate solutions, such as weekend Total cars + LCV 1,740,890 1,867,619 2,197,395 shifts and four- or five-day workweeks, at its powertrain Renault worldwide production in 1998 amounted to 2,197,395 sites. units, an increase of 17.7% from 1997. GbF Ch 3 - 32/47 Angl.exe 28/04/99 6:57 Page 37

FINANCIAL RESULTS (1) The contribution to 1997 revenues, adjusted for (FRF million) 1996 1997 1998 1998 changes in consoli- Automobile Division revenues 149,004 169,062 198,583 dation scope and accoun- Division contribution to Group ting methods, is FRF 167,484 million. • revenues(1)(2) 145,962 165,788 195,077 (2) The main adjustments • operating margin(3) (2,240) 2,390 10,134 involve the change in method of consolidation • operating income (loss) (6,545) 901 8,407 for Renault Argentina and • pre-tax income (loss)(4) (6,447) 1,971 8,573 the inclusion within the Research and development expenses 7,938 8,112 9,239 scope of consolidation of Renault Polska and Investment in tangible and intangible assets 13,550 12,875 12,365 Renault Ceska Républika. Investments in securities 466 767 270 (3) Operating margin, a mea- (5) sure introduced in 1998, Workforce on December 31 111,523 112,178 109,409 corresponds to operating income before other operating income and Revenues Investment expenses. (4) Annual data for 1996 and The Automobile Division's contribution to Group revenues Capital expenditure (property, plant, equipment and intan- 1997 have been restated amounted to FRF 195,077 million in 1998. Calculated on a gibles) decreased slightly relative to 1997. In 1998, it amoun- to reflect the new method of apportioning head offi- consistent basis, this represents an increase of 16.5% from ted to FRF 12,365 million, or 6.3% of the Automobile ce expenses, implemen- 1997. The rise is attributable to the across-the-board increa- Division's contribution to Group revenues. The division fol- ted in the second half of 1998 with effect from se in Renault's sales, the full-year effect of the renewal of the lows a strict policy of carefully planned investment timed to January 1, 1998. The division's contributions to light commercial vehicle range, and the successful launch of generate the highest possible return on each franc invested. pre-tax income as repor- the new Clio. The objective set by the Group Executive Committee is to ted in 1996 and 1997 were respectively a negative This figure also includes the contribution to revenues from hold capital spending between 6% and 7% of revenues. This FRF 6,166 million and a industrial and service companies in related automotive busi- target was met in 1998 even as the division pursued an ambi- positive FRF 2,370 million. (5) The impact of changes in nesses, notably SNR (FRF 1,927 million) and CAT (FRF 1,464 tious program of renewing its vehicle range and mechanical scope of consolidation between 1997 and 1998 is million). In addition, Renault Agriculture contributed FRF components and expanding internationally. Investments in a decrease of 664 3,453 million to Group revenues. the product range accounted for 54% of total capital spen- employees, of which ding in 1998. These investments were devoted mainly to RIMEX (-513), SODICAM Operating Results (-228), Renault Limoges Renault's future upper mid-range vehicle; setting up commer- (-129), CAT Brazil (+113). The Automobile Division's contribution to operating margin cial production of the Clio in Turkey, the Mégane Scenic and Clio amounted to FRF 10,134 million, compared with FRF 2,390 in Brazil, and the Mégane and Kangoo in Argentina; installing million in 1997 and a negative FRF 2,240 million in 1996. The flexible production lines (cylinder heads, camshafts, assem- notion of operating margin, which corresponds to operating bly) as part of the capacity upgrade for multi-valve petrol income before "Other Operating Income and Expenses", is K-series engines and direct-injection diesel F-series engines; introduced here to give a truer picture of Renault's operating renewing the G/D engine series; and producing a diesel ver- performance. The division's contribution to Group operating sion of the K-series engine. Plant and equipment investments income was FRF 8,407 million, compared with FRF 901 mil- not directly related to the product range included the comple- lion in 1997 and a negative FRF 6,545 million in 1996. The tion of the Ayrton Senna plant in Brazil; the thermal cogene- positive trend is attributable to revenue growth combined ration (steam/electric) facility at the Flins plant; the anti-cor- with ongoing efforts to cut costs. The division earmarked rosion treatment and finishing installations at Sandouville FRF 9,239 million to its research and development program, and Douai; and the modernization of the stamping lines at compared with FRF 8,112 million in 1997 and FRF 7,938 mil- Sandouville, installation of new stamping lines at Douai and lion in 1996. Valladolid, and modernization of the assembly facility at Sandouville. 16% of 1998 capital spending was devoted to facilities outside Western Europe. Adjusted for changes in scope of consolidation, the workforce of the Automobile Division decreased by 1.9%. GbF Ch 3 - 32/47 Angl.exe 28/04/99 6:57 Page 38

38 COMMERCIAL VEHICLES DIVISION

Renault's Commercial Vehicles Division is the Group's ved a new 400 bhp power plant in 1998 and was made avai- second-largest in terms of revenues, contributing FRF lable in several new versions. A road transport vehicle for 40,619 million or 16.7% of total revenues in 1998. Its busi- distant export markets, Kerax Route, was introduced in 1998. ness is operated in Europe by Renault V.I. S.A., a wholly Based on the standard Kerax, it combines the durability and owned subsidiary of Renault, and in North America by Mack reliability required in international markets with the comfort Trucks, Inc., a wholly owned subsidiary of Renault V.I. S.A. In of a long-haul cab. The Renault V.I. range of motorcoaches 1998 the European branch accounted for 60.6% of divisional and buses includes the Iliade, launched in 1996 for the tou- revenues and the American branch 39.4%. The Renault V.I. rism trade, and was extended in 1998 with the introduction of group is one of only four manufacturers in the world that the Ares, a multi-purpose vehicle suitable for both scheduled make and sell commercial vehicles in both Europe and North service and excursions, to round out the Tracer line. Récréo, America. a school transport vehicle made by Karosa, is now marketed in France. The Agora range of low-floor buses, launched in In 1998, Renault V.I.'s sales amounted to 90,751 vehicles 1995, is available in articulated and natural-gas-powered ver- (including 5,659 Masters, light commercial vehicles sold sions. A new model introduced in 1998, the Agora Line, is under a co-marketing agreement with the Automobile designed for suburban routes and provides a maximum num- Division), a 25.6% increase from 1997. France accounted for ber of seats, high transit speeds and lower operating costs. In 30.7% of divisional sales by volume, North America 34.5%, the Czech Republic, Karosa designs, manufactures and mar- Spain 6.6%, the rest of Western Europe 14% and the rest of kets a full range of coaches and buses. In France, Heuliez Bus the world 14.2%. designs, manufactures and markets a full range of coaches, The Renault V.I. group designs, manufactures and distributes buses and minibuses. a full range of trucks, coaches and buses covering all needs In North America, Mack manufactures short- and long-haul for transport of merchandise and people, as well as logistical, road vehicles and is the market leader in construction site tactical and other self-propelled vehicles for military use. and municipal vehicles. Since 1995 Mack has extended its Renault V.I. also makes a range of service vehicles for muni- range with the CH600 "Millennium", which has a particularly cipal requirements, such as fire engines, refuse collection luxurious cab designed for long-distance drivers. As with trucks and road maintenance vehicles. Renault V.I. and Mack Renault V.I. in Europe, almost all trucks manufactured by develop and manufacture their own engines as well as the Mack are equipped with Mack components (transmissions, drive trains and axles used in their vehicles. drive trains, axles) and especially Mack engines. This sets In Europe, the principal truck models are the Messenger at Mack apart from other truck makers in the North American the small end and the Midliner in the mid-range segment. The market who equip their vehicles with third-party engines and latter is manufactured in France and sold in Europe under the components. Renault name and in the United States under the Mack name. The Commercial Vehicles Division has twelve main manufac- Since 1996, Renault V.I. has upgraded almost all its vehicles turing sites in eight countries, as listed below. over 16 tons with the introduction of the Premium family, France: Annonay...... Buses, coaches (Iliade, Arès, Agora, Tracer) including the Premium Long Distance (for medium- and long- Blainville...... Midliner, Premium, military vehicles haul merchandise transport), which received a new 400 bhp Bourg-en-Bresse ...... Magnum, Premium power plant in 1998, and the Premium Distribution (for short- Limoges ...... Components, reconditioning of military vehicles haul distribution of heavy cargo). Renault V.I. also sells the Vénissieux ...... Engines, stamping, forging, casting, mechanicals Saint-Priest ...... Drive trains, axles Magnum for long-distance transport. Launched in 1990, the Spain: Villaverde ...... Premium, Kerax, mechanicals Magnum received an engine upgrade in 1996 and a major United States: Winnsboro...... CH, CL restyling of the cab interior in 1997 and 1998, as well as a Macungie ...... MR advanced cab range, LE and DM heavy-duty, new drive axle and numerous new features, many of them DMM, RB, RD Hagerstown ...... Engines, transmissions electronic. The range of vehicles designed for use at Australia: Brisbane ...... Assembly of Mack and Renault V.I. trucks construction sites and in extreme conditions was updated in Czech Republic: Vysoké Myto ...... Assembly of Karosa coaches and buses. 1997 with the Kerax, replacing the Maxter. The Kerax recei- GbF Ch 3 - 32/47 Angl.exe 28/04/99 6:57 Page 39

Renault V.I.'s efforts in quality assurance led in 1994 to ISO To provide Renault V.I. with the resources to pursue its deve- 9002 certification for all of its production sites and in 1996 lopment policy, Renault decided in early 1999 to increase the to ISO 9001 certification for the European branch. In 1997, equity capital of its subsidiary by FRF 3 billion. the division's continued efforts on the quality front resulted The Renault V.I. distribution network comprises over 2,200 in a successful follow-up audit, AQAP110 military certifica- sales outlets, of which 1,350 are in Europe, 660 in North tion, and ISO 9002 or ISO 9001 certification for all the America and nearly 200 in the rest of the world. European subsidiaries. In 1998, the quality program focused on reducing response times to downtime and mobilizing sup- In 1998, the Renault V.I. group ranked fifth in Europe in com- pliers, customers and dealers in the quality effort. mercial vehicles over 16 tons with 12.1% of the market, behind Mercedes, Volvo, Scania and Man. In the United Renault V.I. has continued its policy of industrial cooperation States, Mack had 12.8% of the Class 8 (over 16 tons) market with a view to sharing development costs and lowering pro- in 1998, putting it in third place behind Freightliner and duction costs. On December 31, 1997, Renault V.I. formed a Navistar. joint venture with ZF to which the Bouthéon transmission business and supporting services were subsequently trans- Renault V.I.'s worldwide sales of vehicles over 5 tons, trucks, ferred. The cooperation agreement with Finnish manufactu- coaches and buses amounted to 80,688 units in 1998, an rer SISU, announced in late 1996, was in full operation in increase of 19.8% from 1997. Renault V.I. also sold 4,404 1998. It involves acquisition and operation of the SISU Trucks Messengers of 3.5-5 tons (down 2.0% from 1997) and 5,659 sales network in Finland by a joint venture, marketing and Masters. (These figures are based on invoicing of vehicles distribution of SISU and Renault vehicles via this network, which are typically registered three to four months later.) and commercial synergies in neighboring countries and export markets. Renault V.I. also supplies SISU with mechani- TRUCK SALES cal components (engines, cabs, transmissions, and others). 1996 saw Renault V.I. and Iveco combined their fire-fighting Consolidated sales vehicle businesses in Eurofire, in which Renault V.I. holds a Trucks over 5 Tons 15% stake. Renault V.I. and Matra Transport International 1996 1997 1998 1998/1997 have been working together since 1996 to develop new reser- % ved-lane light urban transport systems. This effort led in late Europe 26,788 28,056 34,006 + 21.2 1997 to the presentation of a full-scale model of Civis, an • France 16,683 16,127 19,268 + 19.5 intermediate transport vehicle. Renault V.I. signed an agree- • Spain 2,908 4,081 4,952 + 21.3 ment with the Paccar/DAF group in 1997 for joint develop- • Rest of Europe 7,197 7,848 9,786 + 24.7 ment of components, in particular a cab, for mid-range (6- to North America 23,010 27,115 31,296 + 15.4 19-ton) trucks. Rest of the World 7,113 8,988 11,488 + 27.8 Total 56,911 64,159 76,790 + 19.7 At the end of June 1998, Renault V.I. and Iveco signed an agreement to form a jointly owned business to combine the two groups' activities in the design, production and marke- of which over 16 tons: ting of coaches and buses. This agreement gives concrete Europe 18,971 19,998 25,987 + 29.9 • France 12,495 11,903 15,119 + 27.0 form to Renault V.I. 's desire to pursue a strategy of sector- North America 21,666 25,518 29,617 + 16.1 based alliances, and it also gives rise to a world-scale Rest of the World 4,980 6,205 7,657 + 23.4 European producer. The Iris.Bus company, to be based in Barcelona, officially came into being on January 1, 1999. It Total 45,617 51,721 63,261 + 22.3 will represent an annual output of 2,300 coaches, 2,800 buses, 1,800 minibuses and 1,400 bare chassis, spread across five manufacturing plants in Europe (Italy, France, Spain and the Czech Republic). GbF Ch 3 - 32/47 Angl.exe 28/04/99 6:57 Page 40

40 COMMERCIAL VEHICLES DIVISION

Western Europe In the market for trucks over 16 tons, the division's overall market share increased from 11.7% to 12.1%. Penetration increased In 1998, Renault V.I. sold 34,006 trucks over five tons in by 2.9 percentage points in Portugal, 0.9 point in the UK and 0.5 Western Europe, an increase of 21.2% from 1997. The high- point in Italy. It was stable in Spain and Germany, and in France it end segment over 16 tons accounted for 25,987 vehicles fell by 0.4 point from 38.3% to 37.9%. sold, an increase of 29.9%. North America In European markets, 1998 was a year of very strong rises. The total market for vehicles over five tons reached 303,750 The class 8 truck market in North America continued its units, up almost 20% from 1997, while the market for trucks expansion in 1998, reaching 252,187 units, an increase of over 16 tons was up more than 22% with 208,900 new- 20.4% from 1997. The US market represented 209,483 units, vehicle registrations. Growth in the over-five-ton market was an increase of 17.3%. observed in every country: Italy 31.2%, France 20.7%, Spain United States – Total Market 21.8%, Germany 20.2%, United Kingdom 17.1%, Portugal Class 8 Trucks (thousands) 11.7%, Belgium 7.7%.

Western Europe – Total Market 250 Trucks over 5 Tons (thousands)

200 350

150 300

250 100 Germany 200 50 150 Other countries 0 100 United Kingdom 1991 1997 1993 1992 1995 1996 1989 1994 1990 1998 50 Spain 1988 France 0

In the United States, Mack increased its market share from 1991 1997 1993 1992 1996 1995 1989 1994 1998 1990 1988 12.5% to 12.8%, confirming its hold on third place in the ranking of truck sales by make. Retail sales totaled 26,801 vehicles, an increase of 19.8% from 1997. Mack retained its In the European market for trucks over five tons, Renault V.I. market-leading position in vehicles for construction sites and achieved a slight increase in market share, from 10.7% to 10.8%, municipal services. In the class 6 and 7 markets, Mack also thanks to a strong performance in Southern Europe. Its market sold 1,742 Midliner trucks made in France, an increase of share reached 10.3% in Italy and increased from 12.4% to 15% in 5.5% over 1997. Portugal, but declined slightly from 20.1% to 19.4% in Spain. In Northern Europe, Renault V.I.'s share slipped from 1.5% to 1.4% Rest of the World in Germany, but rose from 4.1% to 4.3% in the UK. In France the Continuing the trend of past years and in line with its strate- division's market share was stable at 39.1%, with a sizeable 21% gy, Renault V.I. stepped up its sales in export markets outside increase in volume from 15,280 vehicles in 1997 to 18,490 in 1998. GbF Ch 3 - 32/47 Angl.exe 28/04/99 6:57 Page 41

Western Europe with a total of 11,728 vehicles sold, an increa- PRODUCTION se of 27.8%. International truck sales by the European arm The pace of activity at Renault V.I.'s European production were up 33.1%. Africa and the Maghreb accounted for 37% of sites accelerated throughout the year. Output of the sales by volume, Eastern Europe 30% and the Middle East 14%. European arm increased by 21.5% in 1998. Activity in North Mack's class 8 exports were up 16.3% and were concentrated America was also quite strong (up 16.4%). In total, Renault primarily in Latin America, with Venezuela the leading destina- V.I. produced 85,870 units, an increase of 19.5% from 1997. tion (1,600 vehicles), and Australia, where Mack Australia has 14.1% of the class 8 market (over 300 horsepower). Development of synergies between Europe and the United States continues. Since 1996 the Group has had a single sha- COACH AND BUS SALES red range of 10-16 liter engines. In addition to the US-made E9, used in the Magnum since 1990, Mack's E7, which powers Late 1998 brought the launch of a new coach, the Arès, as most of the US-made vehicles, is now the Group's standard well as the Agora Line, which rounds out the Agora range of 12-liter engine. The strengthening of ties between the two transit buses. Renault V.I.'s sales of coaches and buses tota- branches has been given concrete form by the formation of led 3,900 vehicles in 1998, a rise of 21.8% from 1997, attribu- two Group joint project departments responsible for develo- table to increases of 28.2% for the Renault and Heuliez ping engines and motorized chassis for road and construc- brands and 7.7% for Karosa. tion site use. In addition to these new organizational structures, the Group's technical skills centers are now managed The French coach market increased by 25.9% in 1998, and as shared resources. At the same time, technology sharing Renault V.I.'s share of it was 48.4% (49.1% in 1997). The has increased in areas such as suspension, braking and elec- Récréo school coach, built by Karosa for the French market, tronic systems. Since 1996, Renault V.I. and Mack have also scored a success with sales of 300 vehicles in 1998, compa- shared a common purchasing organization that takes an acti- red with 200 in 1997. The Iliade range, launched in late 1997, ve part in efforts to reduce costs. In early 1999, these moves confirmed its success in France, Germany and export mar- were accelerated by the implementation of a new functional kets (Arab countries). The Ares model completes the range organization, in the form of a central corporate staff for func- with a multi-purpose coach designed for both scheduled ser- tions of a strategic nature and two operating branches, vice and tourism. The French bus market increased 39.6% on Europe and US, each with operating and profit responsibility. the strength of large replacement orders from the RATP, Paris's transit authority. Renault V.I.'s share of this market came to 59.6% in 1998 (60.4% in 1997).

Consolidated Production 1998/1997 1996 1997 1998 % change Trucks under 5 tons 3,941 4,600 4,215 –8.4 Trucks over 5 tons 56,566 63,913 77,791 + 21.7 • Europe 32,952 35,671 44,914 + 25.9 • Mack Trucks 23,614 28,242 32,877 + 16.4 Coaches and buses(1) 3,265 3,346 3,864 + 15.5 Total over 5 tons 59,831 67,259 81,655 + 21.4 Grand total 63,772 71,859 85,870 + 19.5

(1) Including Karosa. GbF Ch 3 - 32/47 Angl.exe 28/04/99 6:57 Page 42

42 COMMERCIAL VEHICLES DIVISION

FINANCIAL RESULTS (FRF million) 1996 1997 1998 (1) The contribution to 1997 revenues, adjusted for 1998 changes in Renault V.I. consolidated consolidation scope and accounting methods, is FRF 34,520 million. revenues 30,500 34,301 40,496 (2) Operating margin, a measure introduced in 1998, corresponds to operating income before other operating income and expenses. Division contribution to Group: (3) Annual data for 1996 and 1997 have been restated to reflect the new method of apportioning head office expenses. The division's repor- • revenues(1) 30,007 34,180 40,619 ted pre-tax income in 1996 and 1997 was respectively a negative FRF 1,133 million and a negative FRF 458 million. • operating margin(2) (612) (51) 1,120 (4) The impact of changes in scope of consolidation between 1997 and • operating income (loss) (705) (191) 891 1998 is an increase of 428 employees, of which 397 at Heuliez Bus. • pre-tax income (loss)(3) (922) (159) 588 Research and development expenses 1,187 926 950 Investment in tangible and intangible assets 1,412 1,066 990 Investments in securities 106 39 90 Workforce on December 31(4 ) 26,049 25,860 25,635

The Commercial Vehicles Division achieved revenues of FRF Pre-tax income of Renault V.I. group ...... 853 40,496 million in 1998, an increase of 18.1% from 1997 (FRF Consolidation adjustments and eliminations ...... (48) 34,301 million). For Renault V.I.'s European branch, the Share of head office costs ...... (217) 20.7% increase in revenues is explained by the rise in unit Division contribution to pre-tax income ...... 588 sales both in France and abroad, offset by pressures on prices. For Mack, the 14.1% increase in revenues expressed in The division's capital expenditure amounted to FRF 990 mil- French francs is attributable to the increase in sales invoiced. lion, research and development expenses of FRF 950 million. The division's contribution to Group operating margin was In all, these costs of preparing for the future amounted to FRF 1,120 million, compared with a negative FRF 51 million in 4.7% of revenues. More than a third of the investment spen- 1997 and a negative FRF 612 million in 1996. The contribution ding was product-related and devoted in particular to future to Group operating income became positive at FRF 891 mil- product ranges, especially at Mack. Other significant items lion; it was a negative FRF 191 million in 1997 and a negative included commercial development, upgrading of production FRF 705 million in 1996. The swing is explained by the pick- facilities and capacity increases. The priority areas for up in revenues and Renault V.I.'s cost reduction efforts since research and development are environmental protection 1996. The division's contribution to Group pre-tax income (preparing engines to meet the Euro 3 and Euro 4 standards was also positive at FRF 588 million, compared with a nega- and developing alternative energy sources, in particular tive FRF 159 million in 1997. natural gas), improved active and passive safety, as well as Renault V.I.'s pre-tax income in 1998, as it appears in its own technologies and innovations essential for enhancing vehicle consolidated financial statements, was FRF 853 million, com- performance in terms of productivity, quality and reliability. pared with a pre-tax loss of FRF 313 million in 1997. Net inco- Renault V.I.'s workforce totaled 25,635 employees, a very me after tax was FRF 859 million, compared with a net loss slight decrease from 1997. In Europe, the number of of FRF 321 million in 1997. The amount of the Commercial employees dropped from 20,346 to 19,915; at Mack, owing to Vehicles Division's contribution to Group pre-tax income very strong business, it increased from 5,514 to 5,720. from the pre-tax income of Renault V.I. is derived as follows: GbF Ch 3 - 32/47 Angl.exe 28/04/99 6:57 Page 43

FINANCE DIVISION 43

The principal missions of the Finance Division are to: lion in 1997. Including non-recurring items, consolidated net • offer attractive financing packages backed up by services income was FRF 1,058 million. that make it easier to buy and use passenger cars and com- In an increasingly competitive financing market, R.C.I. in mercial vehicles and enhance customer loyalty (Renault 1998 booked 727,594 new contracts for a total of FRF 40.7 Crédit International and Renault V.I. Finance); billion, an increase of 6% by volume and 9% by value relative • finance inventories of vehicles and spare parts held by dea- to 1997. In Europe, the outstandings of the credit companies lers and Renault France Automobile, the wholly owned increased by 12.1%, from FRF 70,328 million in 1997 to FRF Renault subsidiary comprising all the subsidiaries and branch 78,853 million in 1998. This performance attests to the quali- offices in France; ty of the financing products and the effectiveness of the • take part in managing cash and financial risks for the marketing by the Group's finance affiliates, as well as the Renault Group (Société Financière et Foncière and Renault quality of relations with the sales subsidiaries in each coun- Finance). try. At year-end 1998 R.C.I. had 3,203 employees, of which The Finance Division also takes part in financing some of the 1,992 in France and 1,211 elsewhere in Europe. Group's corporate, real estate and information technology investments. R.C.I. finances 31.8% of all new Renault vehicles sold in Europe. As financial platforms at the service of the Renault Group, its distribution network and its customers, the companies in the In France, three companies provide sales financing for Finance Division are, for the most part, controlled by a holding Renault vehicles. company, Compagnie Financière Renault, a wholly owned – Diac S.A. finances sales to customers through Renault's subsidiary of Renault. More than forty companies, including automobile distribution network; one of Europe's largest car loan groups and two banks, are – Diac Location, the French market leader in long-term leasing involved in supporting the industrial and commercial deve- of automobile fleets, offers a full range of lease packages lopment of the Group. In 1998, Compagnie Financière including services; Renault had consolidated pre-tax income, including the pro- – Cogéra finances stocks of vehicles and spare parts at portionate share of earnings of equity-accounted companies, Renault dealers and Renault France Automobiles. It is also of FRF 2,263 million. Its net income amounted to FRF 1,514 responsible for monitoring and controlling the Renault million. Compagnie Financière Renault thus confirmed its Group's risk on the distribution network. position as a dependable profit center for the Group. In 1998 the Diac group financed 244,825 customer contracts, up 4% from 1997. Consolidated pre-tax income for the year SALES FINANCING was FRF 574 million. FOR RENAULT VEHICLES Outside France, the R.C.I. group operates in Germany, the UK, In Europe, Renault Crédit International (R.C.I.) provides Spain, Italy, Portugal, Austria, Belgium, the Netherlands and financing for sales of Renault vehicles to customers as well Switzerland through some thirty subsidiaries or branch as the dealer network. With its comprehensive and diverse offices. These subsidiaries and branch offices offer products array of financial services, R.C.I. is an essential link in the and services similar to those available in France but adapted Renault Group's marketing strategy. to local needs and requirements. In 1998 they financed 482,769 customer contracts, an increase of 7% from 1997. With total assets of nearly FRF 86.5 billion at year-end 1998, R.C.I. is one of Europe's largest providers of automobile Furthering Renault's international development strategy, loans. Headed by a bank holding company, Renault Crédit R.C.I. has incorporated its representative office in Poland as International S.A. Banque, the group has consolidated net a wholly owned subsidiary and transformed its representati- capital of FRF 7.8 billion, more than 95% of which is Tier One ve office in the Czech Republic into a joint venture with CAC equity capital. Leasing. In Brazil R.C.I. has set up a subsidiary, Consórcio do Brasil. Consolidated net income before non-recurring items amounted to FRF 894 million in 1998, compared with FRF 943 mil- GbF Ch 3 - 32/47 Angl.exe 28/04/99 6:57 Page 44

44 FINANCE DIVISION

The expansion of the business into other geographic markets has prompted R.C.I. to develop new distribution channels and set up new companies, such as Accordia in Italy and Sygma Finance, a joint venture with Sygma Banque (Cofinoga Group) in France. Sales Financing in Europe Country Year Renault R.C.I. Number Amounts Net outstanding of which share of penetration of new financed at year-end Renault total market (1) rate contracts network (%) (%) FRF million France 1998 29.9 27.9 244,825 15,226 27,638 7,040 1997 28.2 31.8 235,659 14,385 26,661 6,481 Germany 1998 6.2 47.9 182,236 8,800 19,398 4,713 1997 6.0 53.2 173,383 8,022 16,681 3,346 United Kingdom 1998 7.7 30.0 83,739 5,778 11,061 3,029 1997 6.9 34.4 88,177 5,851 10,805 3,145 Spain 1998 13.5 31.0 75,551 3,946 7,071 1,852 1997 12.6 27.7 51,993 2,572 5,146 1,385 Italy 1998 7.4 40.2 90,137 4,433 6,922 1,525 1997 6.9 44.3 91,355 4,205 5,705 1,085 Netherlands 1998 8.2 7.7 6,302 495 1,835 1,037 1997 7.4 8.5 5,885 482 1,506 757 Portugal 1998 12.6 37.4 21,068 936 2,037 635 1997 11.5 42.8 20,656 855 1,773 566 Austria 1998 7.3 16.9 5,804 313 902 375 1997 6.3 19.7 5,258 276 849 307 Switzerland 1998 6.5 26.8 6,916 549 832 165 1997 6.6 19.6 5,578 413 695 172 Belgium 1998 10.7 17.8 11,016 268 1,158 769 1997 9.6 23.1 10,743 194 506 187 Europe 1998 11.5 31.8 727,594 40,744 78,853 21,142 (10 countries) 1997 10.5 35.5 688,687 37,254 70,328 17,4311

(1) Total market for passenger cars and light commercial vehicles. GbF Ch 3 - 32/47 Angl.exe 28/04/99 6:57 Page 45

The R.C.I. group complements its financing products with a SALES FINANCING range of services relating to automobile acquisition and use FOR RENAULT COMMERCIAL in Europe. These services help to differentiate Renault from VEHICLES the competition, enhance customer satisfaction and build The Renault V.I. Finance holding company holds the Renault customer loyalty. They take the following forms: Group's equity interests in Europe in companies that provide – maintenance contracts (extended warranties and mainte- financing and services to Renault V.I. customers and distribu- nance) managed for Renault by Sigma and local platforms in tors. This business has been developed in partnership with Europe; specialized financial institutions including Franfinance S.A. – automotive technical assistance provided in France and (Société Générale Group) in France, UFB Locabail (Paribas abroad by Delta Assistance. The assistance unit set up in Group) in the UK and Italy, Runoto Leasing B.V. (ING Group) in association with Gesa, the Spanish subsidiary of UAP, has Belgium and Finanzia (Banco Bilbao Viscaya Group) in Spain offered a similar service in Spain since 1994; and Portugal. – auctions of used vehicles organized by Transparcs; – the Réserve de Poche credit card (Diac), extended to The consolidated net income of Renault V.I. Finance amoun- Portugal in 1998; ted to FRF 9.3 million in 1998, compared with FRF 0.7 million – insurance, mainly against risks associated with automobile in 1997. The increase was to due to growth in outstandings, use and finance contracts, provided via various insurance control of the cost of risk and continued efforts to reduce brokers in France (Reca) and other European countries (Dissa management expenses. in Spain, RVD in Germany, Gest Seguros in Portugal). In 1998 R.C.I. formed RGS, a 50/50 joint venture with Gras Savoye, to CASH MANAGEMENT AND RISK offer business customers a full range of insurance services, MANAGEMENT FOR THE RENAULT from risk prevention and cover to claims management. GROUP In addition to enhancing its range of services, R.C.I. has been For its industrial and commercial activities, the Renault expanding its presence in long-term leasing. Already active Group has established a financial organization for the pur- in eight European countries — soon ten — under the Overlease poses of: name, R.C.I. in 1998 signed a Europe-wide Overlease agree- • automating the processing of routine cash inflows and out- ment with Renault and GCRE, the European association of flows, with improved security and reliability; Renault dealers. • pooling the surplus cash of Group subsidiaries and meeting Alongside these actions aimed at ensuring continued expan- their refinancing requirements; sion of R.C.I.'s business and loan book, the Group has taken • centralizing the handling of foreign exchange transactions measures to optimize its organization in Europe by setting for better management of currency, interest-rate and credit up a new refinancing branch in Italy. risks while reducing administrative costs; • centralizing all required financing, including security depo- The goal of R.C.I.'s financial policy is to provide secure refi- sits, at the parent company level. nancing of the Group's activity, optimize the cost of funds, rigorously manage all financial risks and maintain a solid, Within this framework, Compagnie Financière Renault pro- well-structured balance sheet. These objectives, which are vides Renault's Treasury and Finance Department, in charge set out and implemented by R.C.I. S.A. Banque, are based on of cash management and financing for the Group's industrial globalization of the refinancing market and diversification of and commercial activities in Europe, with tools enabling it to: sources of funds. In 1998, Renault Crédit International's • centralize cash flows with the Group (Société Financière et short-term obligations were rated P2 by Moody's, A2 by Foncière); Standard & Poor's and F1 by Fitch-IBCA, while its long-term • carry out transactions in financial markets, after netting, to debt was rated Baa1 by Moody's. manage the Group's currency, interest-rate and deposit risks and maximize returns (Renault Finance); GbF Ch 3 - 32/47 Angl.exe 28/04/99 6:57 Page 46

• carry out hedging transactions on metals trades by the pur- Renault Acceptance B.V. chasing department (Renault Acceptance B.V.). Renault Acceptance B.V., a Dutch corporation, is part of the Société Financière et Foncière (S.F.F.) organization for managing the Group's financial operations. It operates through its branch office in Lausanne and has been Société Financière et Foncière is a full-fledged bank within in operation since mid-1997. It carries out hedging transactions the Renault Group. Its mission, within the Group's centralized on trades in metals executed by Renault's purchasing depart- cash management and financing structure, is to provide ment. On December 31, 1998, its total assets stood at NLG Renault and its industrial and commercial subsidiaries with a 62 million. range of services tailored to their needs and allowing integrated management of the Group's cash flows. S.F.F. is in charge of all cash flows of Renault S.A. as well as the first- OTHER RESPONSIBILITIES and second-tier subsidiaries of the Automobile Division in In its role as a financial holding company, Compagnie Europe. It handles substantial volumes while limiting its Financière Renault participates in business development for charges, maintaining a high standard of quality and streng- the Renault Group and makes certain financial investments thening its security systems. for this purpose. S.F.F.'s net income declined to FRF 29.9 million in 1998, from The Finance Division also participates in the financing of the FRF 33 million in 1997, mainly because lower medium-term Group's real estate and IT investments via specialized subsi- interest rates made it impossible to replace maturing loans diaries of Compagnie Financière Renault, namely SIAM for on terms as favorable as in the past. S.F.F.'s total assets were certain real estate investments and SOFIMIN for IT invest- stable at FRF 2,169 million (FRF 2,166 million in 1997). ments. Renault Finance In 1998, SIAM continued to be active in the expansion or dis- Renault Finance, a Swiss corporation domiciled in Lausanne, posal of certain Renault branch offices. At year-end 1998 its handles the majority of foreign exchange positions for net long-term assets amounted to FRF 1,009 million (inclu- Renault and its industrial and commercial subsidiaries. It also ding FRF 436 million of equity securities) on shareholders' trades for its own account in order to be able to offer the equity of FRF 1,160 million. On the occasion of the grouping Group a competitive level of service on all financial products. of all the French subsidiaries and branch offices within a new company, Renault France Automobiles, SIAM transferred to From July 1, 1998, Renault Finance is consolidated by that company all the real property associated with Renault's Compagnie Financière Renault and is thus subject to the pru- sales and marketing activities. dential rules and reporting requirements of the French banking commission. Renault Finance has since obtained authorization from the Swiss authorities to keep its accounts in French francs and consequently, from January 1, 1999, in euros.

Renault Finance's operating income in 1998 was approximately equal to the previous year's at FRF 160 million before tax. Total assets at year-end 1998 amounted to FRF 40,047 million. GbF Ch 3 - 32/47 Angl.exe 28/04/99 6:57 Page 47

FINANCIAL RESULTS (FRF million) 1996 1997 1998 Divisional revenues 8,686 8,771 9,473 (1) Operating margin, a measure introduced in 1998, Division contribution to Group: corresponds to operating income before other ope- • revenues 8,109 7,944 8,238 rating income and • operating margin(1) 1,280 1,355 1,341 expenses. (2) Change in allocation of • operating income 1,263 1,320 1,541 head office expenses, • net financial income(2) 467 958 435 restatement of 1996 and 1997 data. • pre-tax income(2) 1,724 2,283 1,984 Investments in tangible and intangible assets 1,431 1,534 1,111 Investments in securities 81 8 76 Workforce at December 31 3,333 3,277 3,277

The Finance Division's contribution to consolidated Group revenues was FRF 8,238 million in 1998, compared with FRF 7,944 million in 1997. The change was due mainly to an increase in interest income resulting from the rise in average interest-bearing assets, despite lower interest rates.

The division's contribution to operating margin was FRF 1,341 million in 1998.

The division's contribution to operating income was FRF 1,541 million, an increase of 16.7% from 1997. The drop from the first half to the second half of 1998 is attributable to a profit of FRF 311 million relating to a tax refund in the UK, booked in the first half, and to the impact of Diac's manpower plan booked in the second half.

The division's contribution to net financial income was FRF 435 million in 1998, compared with FRF 958 million in 1997. This amount includes earnings on activities of Société Financière et Foncière and Renault Finance. The comparable figure for 1997 included a capital gain of FRF 419 million rea- lized by Compagnie Financière Renault on the sale of Elf Aquitaine shares.

The amount of the Finance Division's contribution to Group pre-tax income from the pre-tax income of Compagnie Financière is derived as follows: Pre-tax income of C.F.R.* ...... 2,263 * before share of earnings of equity-accounted affiliates. Consolidation adjustments and eliminations ...... (207) Share of head office expenses and interest expenses ..... (72) Division contribution to pre-tax income ...... 1,984 Gb Ch 2 -1/19 Angl.Eur.exe 28/04/99 7:27 Page 2

II. Renault in 1998

2 REVENUES

All rankings and market data cited in this document are taken from statistics of the Comité des Constructeurs Français d'Automobile (CCFA), supplemented by internal Renault statistics.

(1) Reported. (2) For purpose of comparison, the 1997 figures have been restated to reflect the same scope of consolidation and accounting methods as in 1998. The main adjustments involve changes in the method of consolidation for Renault Argentina (275 million euros) in the Automobile Division and Heuliez Bus (53 million euros) in the Commercial Vehicles Division. Gb Ch 2 -1/19 Angl.Eur.exe 28/04/99 7:27 Page 3

Revenues in France made up 38.6% of the total. Revenues outside France increased by 18.9% to 22,833 million euros (61.4% of the total), showing the progress of the group's international development.

4 RESULTS

OPERATING MARGIN

Decisions to set aside provisions for restructuring are usually The internal Group agreement on assignment of head office recorded in the second half. This explains the decrease in ope- expenses was revised in 1998. Figures for the two prior rating income in the Automobile and Commercial Vehicles years, 1997 and 1996, have been modified accordingly. Divisions in the latter part of the year. RENAULT NET INCOME FINANCIAL INCOME As provided for under the Group's tax consolidation regime, Net financial items were positive at 60 million euros in 1998, which was renewed on January 1, 1998 for a period of three compared with 308 million euros in 1997 and 49 million euros years, Renault determines its tax liability by including the in 1996. Financial income in 1997 included 252 million euros of taxable income of most of its subsidiaries and affiliates and gains on the disposal of Elf Aquitaine and AB Volvo securities. offsetting against this amount certain taxes paid by the same subsidiaries and affiliates. SHARE IN NET INCOME OF COMPANIES ACCOUNTED In 1998, with Renault no longer benefiting from tax loss car- FOR BY THE EQUITY METHOD ry-forwards, current taxes represented an expense of 677 million euros, compared with 147 million euros in 1997. After Renault's share in net income of companies accounted for by a final 295 million euro reversal of the provision for deferred the equity method represented a loss of 13 million euros, tax assets (compared with 229 million euros in 1997), net tax attributable mainly to the Turkish marketing subsidiary. For expense for the year came to 362 million euros (compared comparison, this item represented income of 7 million euros with net tax income of 205 million euros in 1997). in 1997 and 3 million euros in 1996. After deduction of this tax expense and negative minority GROUP PRE-TAX INCOME interests of 12 million euros, Renault's net income amounted to 1,349 million euros in 1998, an increase of 522 million Group pre-tax income amounted to 1,699 million euros, com- euros from 1997 (827 million euros). pared with 624 million euros in 1997 and a loss of 861 million euros in 1996. The contributions of the various Group divisions are given in the following table. Contribution to Pre-Tax Income (Loss) by Division 1996 1997 1998 Change In millions of euros 1998/1997 Automobile (983) 300 1,307 +1,007 Commercial Vehicles (141) (24) 90 +114 Finance 263 348 302 -46 Total (861) 624 1,699 +1,075 Gb Ch 2 -1/19 Angl.Eur.exe 28/04/99 7:27 Page 6

6 CASH FLOW

Investments consumed 1,765 million euros in cash in 1998, compared with 1,417 million euros in 1997.

FINANCIAL POSITION

8 RESEARCH AND DEVELOPMENT

WORKFORCE AND HUMAN RESOURCES

With an objective of 2 million hours devoted to training, or an ments, the new one is a framework agreement. It will give average of 43 hours per person, the training plan represents rise in coming months to negotiations at two levels. an investment of nearly 76 million euros, or 5% of the payroll. – at company level, an amendment to the framework agreement will be negotiated with the aim of giving all employees The 1998 plan called primarily for: a stake in Renault's financial results. • enhancing job skills (36% of training hours), – at the establishment (job site) level, local agreements will • anticipating changes by preparing employees for retraining be negotiated to recognize performance at each site and and mobility assignments (30% of hours), take account of its specific characteristics. • increasing management skills (13% of hours). The profit-related bonus paid on April 10, 1998 to employees of In addition, training in new technologies (7% of total contact the Renault parent company in respect of 1997 financial results hours) was provided to support start-ups of new industrial was 47 euros for each 152 euros of base monthly salary, with a processes and new model launches. As part of Renault's minimum payment of 382 euros. international development, 6% of hours were devoted to lan- guage training. In accordance with legal requirements or special dispensa- tions, profit-sharing agreements were signed in all the princi- A new agreement on employing differently-abled persons pal companies of the Group. was signed in 1998 by management and all the unions. The main provisions concern employment, hiring and training, Profit-related bonus schemes were also implemented in the and accommodation during employment. Renault maintains principal companies to give employees a stake in the compa- its objective of having the differently-abled make up at least ny's profits, progress and achieved performance, in particular 2% of annual new hires in engineering, commercial and admi- in the area of quality. nistrative positions. As regards procurement from the shel- For the Renault parent company, the amounts involved, equal tered sector, Renault commits to maintaining the flow of to 5% of consolidated income before tax (and before profit- business at the level of recent years (which is equivalent to related bonuses) plus site performance bonuses, were as fol- direct employment of 120 differently-abled persons). Other lows over the past five years: provisions cover hiring and training, both internally and in (In millions of euros) support organizations for the differently abled, and assuring suitable positions and work schedules for these persons. 1994 57 1995 44 WAGES AND PROFIT-SHARING 1996 33 1997 64 The average wage increase for production workers and non- managerial staff was 2.8% in 1998, while inflation remained 1998 120 at a subdued annual pace of about 0.3%.

STOCK OPTIONS

The Board of Directors has granted stock options as follows: • On October 22, 1996, 446,250 stock options, including 64,000 reserved for senior managers of the Renault Group. These options may be exercised from October 22, 1999 until October 22,2006. • On October 28, 1997, 553,750 stock options, including 94,000 reserved for senior managers of the Renault Group. These options may be exercised from October 29, 2002 until October 27, 2007. • On October 27, 1998, 1,912,500 stock options, including 670,000 reserved for senior managers of the Renault Group. These options may be exercised from October 28, 2003 until October 26, 2008.

These grants are summarized in the table below.

12 ECONOMIC ENVIRONMENT

To our knowledge, the Group's production does not depend Fuel and Vehicle Taxes on patents or licences belonging to third parties. France has affirmed its desire for gradual harmonization of taxes on gasoline and diesel fuel. The French authorities are REGULATORY FRAMEWORK committed to a gradual realignment of the tax difference in FOR ISSUES OF SAFETY, EMISSIONS France, currently 0.22 euro per liter in favour of diesel, with AND INDUSTRIAL ENVIRONMENT the EU average, currently 0.15 euro. The rebalancing will begin in 1999 with an adjustment of 0.01 euro. For the first time in The development of automotive electronics opens new pros- several years, France's tax on premium unleaded gasoline was pects in the area of accident avoidance, and applications with unchanged. this aim were introduced in 1998. Regulatory oversight of this technological evolution has taken the form of gradual A provision of France's Finance Act for 1999 allows reimburse- definition of new safety requirements for electronic systems, ment of part of the domestic tax on petroleum products for particularly concerning braking and vehicle handling. commercial vehicles over twelve tons.

As regards environmental issues, the emissions reduction At the same time, the legislature has consolidated the various requirements for light and heavy vehicles in the years 2000 tax incentives for clean vehicles, notably LPG vehicles, and and 2005 have now been set. In addition to significant cuts extended them to include dual-fuel vehicles. in allowed levels of emissions, the requirements call for a Taxation in Europe system of continuous monitoring of the vehicle's emission control system (On-Board Diagnostic or OBD system) as well The European Union continues to be notable for wide dispari- as increased durability and verification of compliance by ties in taxes applicable to motor vehicles. These disparities are vehicles in service (COPIS). For the first time, these stages in attributable to the lack of convergence in VAT rates and the automotive emissions reduction establish a clear link bet- maintenance of specific taxes on vehicle purchases in many ween vehicles and fuels. European countries. With the introduction of the euro, the per- sistence of these disparities continues to raise problems. Fuel Consumption and CO2 Emissions Designs and Models An agreement on the automobile industry's contribution to reducing emissions of greenhouse gases was concluded in In 1998 European Union institutions ended their examination 1998 between European car makers and EU authorities in of the designs and models directive that had been under Brussels. This agreement sets an overall target for carbon review since 1991. For the automotive industry, the directive dioxide emissions of new cars sold in Europe in 2008 at 140 governed the legal protection applicable to visible parts of g/km, which corresponds to fuel consumption of 5.9 l/100 the bodywork. Each member state is free to maintain the (liters per 100 kilometers) for gasoline and 5.3 l/100 for diesel. same protection for a further period, which will range in The Buenos Aires conference on global warming in November practice from five to seven years. 1998 highlighted the commitment of Europe and its industry to Recycling of End-of-Life (EOL) Vehicles reduce emissions of greenhouse gases. This conference also confirmed quantified targets for greenhouse gas reduction by Renault continues to implement the framework agreement on the principal countries and identified the main policy instru- EOL recycling that was worked out with the French govern- ments for achieving them. ment and the operators of the subsidiaries. In 1997 approximately 110,000 Renault EOLs were processed and 83.7% of vehicle weight was recycled. Gb Ch 2 -1/19 Angl.Eur.exe 28/04/99 7:28 Page 13

Renault has set up a subsidiary to market refurbished OEM parts through its dealer network.

Litigation

14 MAIN LINES OF DEVELOPMENT IN 1998

The effort to take out costs will continue after the year The Curitiba plant, designed to assemble vehicles under 2000, and Renault is already drawing up the objectives that conditions of maximum flexibility and competitiveness and will be set for that period. surrounded by its major suppliers, was inaugurated on December 4, 1998. In commercial vehicles, Renault V.I. is still pursuing its objective of moving from a recovery phase to a phase of profitable Industrial Alliances and Cooperation Agreements growth. This transition cannot be achieved without an impro- Renaults seeks maximum efficiency and worldwide scale for vement in competitiveness. The Group has therefore under- each of its businesses. taken a series of actions in this regard, with a major drive to lower costs both internally and externally. In the area of pur- In automobiles, Renault is cooperating with NTN, a Japanese chasing, this is a question of finding suppliers with worldwide components supplier, to assure a long-term future for its uni- scale, chosen for their technical expertise and financial versal joints business at the plant in Le Mans. Fiat and soundness, to become true partners of the division. Renault have pooled most of their foundry activities, which are operated via Teksid S.p.A. (wholly owned by Fiat) and AT Renault V.I. is also stepping up the implementation of syner- Systèmes (an EIG belonging to Renault). The new group has gies between its two operating units in the area of heavy- the capability to position itself as a world standard in casting duty trucks. The objective of the Convergence program is to for the automotive industry. achieve maximum sharing of components on vehicles sold in Europe and the United States within three years. Renault V.I. and Iveco have merged their coach and bus activities in a jointly owned company. This 50/50 joint venture, Manufacturing Efficiency and Responsiveness named Iris.Bus, began operations on January 1, 1999 as num- Renault has been engaged for several years in a process of ber two in its sector in the European market and one of the rationalizing and streamlining its manufacturing facilities. world's larger producers of passenger transport vehicles. The general principle is to assign a single vehicle segment to The Finance Division, via its Renault Crédit International each plant. With the Sandouville plant set to be producing a subsidiary, is also pursuing an active partnership policy that single, top-of-the-range platform in 2000, only the Flins enables it to offer an ever-broader range of sales aid pro- plant will still be operating on a dual-flow basis, simulta- ducts and establish a presence in international markets. neously producing the Twingo and the Clio II on two different 1998 saw the birth of Renault Credit Polska, in partnership assembly lines. This manufacturing system is consistent with with Poland's Bank Slaski, and Renault Leasing Cz., offspring Renault's product range plan and platform architecture. The of a joint-venture contract with CAC Leasing in Prague. three French assembly plants for passenger cars will produce the range's three platforms: top-range, midrange and entry- Effective Organizational Structures level. The two Spanish plants will produce vehicles in the Renault's competitiveness strategy, based on lowering costs, high-volume segments, i.e. Clio II and Mégane. shortening lead times and improving product and service Gb Ch 2 -1/19 Angl.Eur.exe 28/04/99 7:28 Page 16

16 MAIN LINES OF DEVELOPMENT IN 1998

In Brazil, the first Scenics were marketed in March 1999. with another brand name, since Renault would ultimately Renault announced that it would build an engine plant at the have Dacia produce a vehicle designed to sell for less than Curitiba site with the aim of meeting 80% of the engine USD 6,000 in local and emerging markets. requirements of the Mercosur plants starting the year 2000. The Finance Division is also participating in Renault's inter- Renault also made further progress in extending its local national development by establishing partnerships in Eastern sales network. Europe and Mercosur. In Argentina, the Córdoba plant underwent a significant Renault currently has little presence in Asia, but the Group is equipment upgrade, and a program to reduce costs by 30% watching this part of the world attentively and will explore in three years is under way. any opportunities that might arise. On January 13, 1999, Brazil's central bank abandoned its floating exchange-rate regime, with the result that the Brazilian currency declined by about 40% in the space of a few days. This decline will be reflected in Renault's shareholders' equity by a correction to the currency translation adjustment.

18 MAIN LINES OF DEVELOPMENT IN 1998

RENAULT AND THE EURO Renault employees in the euro zone have been familiarized with the new currency since 1998 via in-house communica- To be ready for the euro, Renault began extensive prepara- tion and training. For information purposes, pay slips have tions as early as 1996. Virtually every area of the business — shown the euro value of net wages since January 1999. sales, marketing, advertising, purchasing, accounting, administration, finance, information systems — is affected by the By the end of the transitional period (year-end 2001), all switchover to the European single currency. information systems — accounting, administration, planning, budgeting, costing, payroll, etc. — will have been switched A project structure was established at the corporate level. over to the euro. From January 1, 2002, Renault will use the Each department and subsidiary has appointed a coordinator euro exclusively. responsible for organizing the necessary planning, coordinating the work to be done and monitoring the implementation To minimize adaptation costs, the switchover to the single cur- plans to adapt that sector's operations to the euro. rency has been incorporated into the systems renovation projects already planned by Renault for the 1999-2002 period. Upstream, a lean project management team orchestrates the collective effort by tracking the projects, coordinating between the departments and subsidiaries, and communicating internally and with the outside world. This mode of organization has the advantage of cutting across all sectors of the Group, making it possible to identify and implement common solutions, harmonize timetables and minimize adaptation RENAULT AND THE MILLENIUM BUG costs. Owing to the broad scope and diverse nature of its implica- The project team leads a steering committee composed of all tions, Year 2000 (Y2K) compliance constitutes a project of the coordinators from the departments and subsidiaries. The the highest importance throughout the Group. Renault has committee meets every two weeks to define strategies and therefore implemented a structured approach to detecting coordinate planning and implementation work. and systematically dealing with Y2K risks in all areas of its In addition, a plenary committee, composed of senior mana- business. gers from the major functional units of the different divisions Starting in early 1995, measures were taken to ensure that and chaired by Mr Shemaya Lévy, Executive Vice President new information systems would be capable of handling post- of the Renault Group, meets at the request of the project 31/12/99 dates without a problem. To deal with existing sys- management team to approve all important decisions. tems, multidisciplinary working groups were established in Effective in January 1999, the Group is able to express all 1996 to work out and document a practical methodology communications with the outside world in euros. based on prevention. This effort led to the formation of a – Customers: prices are displayed in both the domestic cur- Groupwide network, with a "Year 2000" manager at each site rency and euros, and sales of good and services (including and a correspondent in each function. This mode of organiza- financial services) are invoiced in the currency of the custo- tion makes it possible to check compliance by all the automa- mer's choice. ted equipment and software programs in daily use at Renault's – Suppliers: the Group is able to issue orders to, receive manufacturing facilities, marketing locations and technical invoices from, and pay its foreign suppliers in euros. In June centers. 1999 this option will be extended to all suppliers. It is also essential for Renault to ensure continuity of supply – Financial community and shareholders: financial reporting by averting possible failures at its suppliers. Supplier Y2K is in euros and French francs. Gb Ch 2 -1/19 Angl.Eur.exe 28/04/99 7:28 Page 19

OUTLOOK FOR 1999 19

In 1999, in a less buoyant climate than that prevailing in 1998, Renault expects to show an operating margin in line with its objective of achieving 4% of revenues on average over a business cycle.

❋❋❋

IV. Consolidated Financial Statements

48 AUDITORS’ REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 1998

Pursuant to the mandate entrusted to us by your Annual Shareholders’ Meeting, we have audited the accompanying consolidated financial statements of Renault for the fiscal year ended on December 31, 1998.

These consolidated financial statements have been approved by the Board of Directors. Our role is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with professional standards. Those standards require that we plan and perform the audit so as to obtain a reasonable assurance that the annual accounts are free of material misstatement. An audit involves examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. It also involves assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion expressed below.

In our opinion, the consolidated financial statements give a true and fair view of the financial position and the assets and liabilities of the Group as at December 31, 1998, and results of its financial operations for the fiscal year then ended.

We have also verified the Group financial information provided in the Group management report.

We have no comments to make as to the fair presentation of this information nor its consistency with the consolidated financial statements.

Paris, March 16, 1999

The Auditors

DELOITTE TOUCHE TOHMATSU ERNST & YOUNG, Audit

Olivier AZIERES Dominique THOUVENIN GbF Ch 4 - 48/55 Angl.exe 28/04/99 6:52 Page 49

CONSOLIDATED INCOME STATEMENTS 49

(FRF million) 1998 1997 1996

Sales of goods and services 236,096 200,037 176,023

Sales financing revenues (note 4) 7,838 7,875 8,055

Revenues (note 3) 243,934 207,912 184,078

Cost of goods and services sold (187,069) (163,251) (146,807)

Cost of sales financing (note 4) (4,990) (4,509) (4,716)

Research and development expenses (10,189) (9,038) (9,125)

Selling, general and administrative expenses (29,091) (27,420) (25,002)

Operating margin (note 1-H) 12,595 3,694 (1,572)

Other operating income and expenses (note 5) (1,756) (1,664) (4,415)

Operating income (loss) 10,839 2,030 (5,987)

Net interest income 342 289 65

Other income and expenses, net 52 1,729 259

Financial income (note 7) 394 2,018 324

Share in net income of companies accounted

for under the equity method (note 11) (88) 47 18

Group pre-tax income (loss) 11,145 4,095 (5,645)

Current and deferred tax (note 8) (2,375) 1,343 379

Group net income (loss) 8,770 5,438 (5,266)

Minority interests 77 (11) 18

Renault net income (loss) 8,847 5,427 (5,248)

Earnings per share in French francs (note 1-K) 36.98 22.79 (22.07)

Number of shares outstanding (in thousands) 239,261 238,151 237,750

The Group introduced the notion of operating margin in 1998. Data for 1996 and 1997 have been restated on a proforma basis. 50 CONSOLIDATED BALANCE SHEETS ON DECEMBER 31

(FRF million) 1998 1997 1996 ASSETS Intangible assets 559 595 357 Property, plant and equipment (note 9) 57,722 58,780 55,104 Assets under operating lease (note 10) 1,639 1,799 1,799 Investments in companies accounted for under the equity method (note 11) 769 712 757 Other investments (note 12) 1,095 1,204 2,897 Other financial assets 2,035 2,279 2,152 Finance receivables (note 13) 71,483 64,009 57,808 Deferred tax assets (note 8)(a) 8,233 6,246 4,050 Inventories (note 14) 26,385 24,353 21,663 Accounts and notes receivable (note 15) 19,032 17,374 15,913 Other receivables and pre-paid expenses (note 16) 11,611 14,120 10,378 Loans (note 17) 40,406 26,369 36,307 Marketable securities (note 18) 1,989 1,889 1,191 Cash and cash equivalents (note 1-P) 7,128 10,392 7,264 Total assets 250,086 230,121 217,640

SHAREHOLDERS' EQUITY AND LIABILITIES Share capital 5,995 5,995 5,995 Share premium account 15,524 15,524 15,524 Retained earnings 23,290 18,632 23,677 Translation adjustments (2,094) (1,661) (2,178) Net income 8,847 5,427 (5,248) Shareholders' equity (note 19) 51,562 43,917 37,770 Minority interests (note 20) 4,340 4,456 2,026 Redeemable shares (note 21) 2,320 2,317 2,317 Deferred tax liabilities (note 8) (a) 1,284 1,425 1,417 Provisions for pensions and other post-retirement benefits (note 22) 7,098 7,012 6,372 Other provisions for risks and liabilities (note 23) 13,626 12,394 10,064 Bonds (note 24) 21,225 20,199 19,782 Other borrowings (note 24) 78,984 78,742 86,254 Accounts and notes payable 41,371 35,900 29,882 Other liabilities (note 25) 24,531 20,589 17,672 Deferred income 3,748 3,170 4,084 Total shareholders' equity and liabilities 250,086 230,121 217,640

(a) From 1998, deferred tax assets and liabilities are offset by tax grouping in balance sheet presentation. Data for 1996 and 1997 have been restated accordingly (note 8). GbF Ch 4 - 48/55 Angl.exe 28/04/99 6:52 Page 51

CHANGE IN CONSOLIDATED SHAREHOLDERS' EQUITY 51

(FRF million) Number of shares Share capital Share premium Foreign currency Retained earnings Total (in thousands) account translation adjustment Balance on December 31, 1995, before allocation 237,355 5,975 15,444 (2,137) 24,514 43,796 Capital increase (note 19-A) 790 20 80 100 Dividend (837) (837) Change in translation adjustment and other (41) (41) Income for the 1996 fiscal year (5,248) (5,248)

Balance on December 31, 1996, before allocation 238,145 5,995 15,524 (2,178) 18,429 37,770 Treasury stocks 1,000 93 93 Dividend Change in translation adjustment and other 517 110 627 Income for the 1997 fiscal year 5,427 5,427

Balance on December 31, 1997, before allocation 239,145 5,995 15,524 (1,661) 24,059 43,917 Treasury stocks 653 61 61 Dividend (836) (836) Change in translation adjustment and other (433) 6 (427) Income for the 1998 fiscal year 8,847 8,847

Balance on December 31, 1998, before allocation 239,798 5,995 15,524 (2,094) 32,137 51,562

On December 31, 1998, unrealized foreign exchange gains and losses relating to euro zone currencies included in consolidated shareholders' equity amounted to FRF (2,287) million francs. GbF Ch 4 - 48/55 Angl.exe 28/04/99 6:53 Page 52

52 STATEMENTS OF CASH FLOWS

(FRF million) 1998 1997 1996 OPERATING ACTIVITIES Net income 8,847 5,427 (5,248) Depreciation and amortization 11,827 11,002 10,629 Net effects of sales financing credit losses 681 577 571 (Profits) losses on asset disposal (72) (2,017) 330 Appropriation of long-term net valuation provisions 1,075 876 1,694 Share in net income of companies accounted for under the equity method (net of dividends received) 109 (34) 74 Deferred taxes (2,069) (2,038) (1,114) Minority interests (77) 11 (18) Cash flow 20,321 13,804 6,918 Increase in inventories (2,475) (418) (88) Decrease (increase) in accounts and notes receivable (2,003) (338) 327 Decrease (increase) in other receivables and accrued expenses 2,400 (2,529) (1,158) Increase (decrease) in trade accounts and notes payable 5,642 3,885 (42) Increase in other payables and deferred income 5,942 3,340 3,780 Decrease in working capital requirement 9,506 3,940 2,819 Retail financing (40,945) (37,684) (31,567) Customer repayment 35,003 32,668 28,852 Change in renewable net dealer financing (2,582) (1,087) 1,403 Increase in receivables from sales financing (8,524) (6,103) (1,312) Cash flows from operating activities 21,303 11,641 8,425 GbF Ch 4 - 48/55 Angl.exe 28/04/99 6:53 Page 53

(FRF million) 1998 1997 1996 INVESTING ACTIVITIES Acquisitions of investments, net of cash acquired (436) (814) (653) Capital expenditure for property, plant equipment and intangibles (14,466) (15,475) (16,393) Disposal of investments, net of cash disbursed 413 4,505 144 Proceeds from sales of property, plant and equipment and intangible assets 2,603 2,586 2,301 Net investment (11,886) (9,198) (14,601) Net (increase) decrease in other financial assets(a) 309 (94) 151 Receivables on AB Volvo relative to the disposal of VTC 1,129 CASH FLOWS FROM INVESTING ACTIVITIES(a) (11,577) (9,292) (13,321)

FINANCING ACTIVITIES Bond issuance 1,613 4,497 4,080 Bond redemption (516) (3,934) (1,401) Net increase (decrease) in other borrowings 2,353 (11,467) (806) Net (increase) decrease in marketable securities (a) (45) (611) 334 Net (increase) decrease in loans (a) (15,164) 11,758 560 Proceeds from minority interests 182 483 168 Dividends paid to parent company shareholders (836) (737) Dividends paid to minority interests (208) (121) (77) Other (3) (71) CASH FLOW FROM FINANCING ACTIVITIES(a) (12,624) 605 2,050

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (note 1-O) (2,898) 2,954 (2,846) Balance at the beginning of the year 10,392 7,264 10,590 Increase (decrease) (2,898) 2,954 (2,846) Effects of exchange rates on cash and cash equivalents (366) 174 (480) Balance at the end of the year 7,128 10,392 7,264

(a) From 1997, variations in marketable securities and loans are included in cash flow from financing activities. Before this date they were counted in cash flow from investing activities. Data for 1996 have been adjusted accordingly. GbF Ch 4 - 48/55 Angl.exe 28/04/99 6:53 Page 54

54 INFORMATION BY DIVISION

(FRF million) Renault S.A. Automobile Commercial Vehicles Finance Consolidated Head Office Division Division Division 1998 fiscal year Revenues 198,583 40,911 9,473 Inter-division eliminations(b) (3,506) (292) (1,235) Contribution to consolidated revenues 195,077 40,619 8,238 243,934 Contribution to consolidated operating margin 10,134 1,120 1,341 12,595 Contribution to consolidated operating income 8,407 891 1,541 10,839 Contribution to consolidated pre-tax income(a) 8,573 588 1,984 11,145 Total assets 5,032 103,976 19,916 121,162 250,086 Investments in securities 270 90 76 436 Investments in property, plant, equipment and intangibles 12,365 990 1,111 14,466 Depreciation and amortization 10,252 972 603 11,827 Research and development expenses 9,239 950 10,189 Workforce 109,409 25,635 3,277 138,321

1997 fiscal year Revenues 169,062 34,626 8,613 Inter-division eliminations (b) (3,274) (446) (669) Contribution to consolidated revenues 165,788 34,180 7,944 207,912 Contribution to consolidated operating margin 2,390 (51) 1,355 3,694 Contribution to consolidated operating income 901 (191) 1,320 2,030 Contribution to adjusted consolidated pre-tax income(a) 1,971 (159) 2,283 4,095 Contribution to published consolidated pre-tax income 2,370 (458) 2,183 4,095 Total assets 4,445 101,940 19,340 104,396 230,121 Investments in securities (24) 791 39 8 814 Investments in property, plant, equipment and intangibles 12,875 1,066 1,534 15,475 Depreciation and amortization 9,392 975 635 11,002 Research and development expenses 8,112 926 9,038 Workforce 112,178 25,860 3,277 141,315

1996 fiscal year (a) The activity of the Renault Revenues 149,004 30,501 8,682 and Cofiren Head Offices is Inter-division eliminations (b) (3,042) (494) (573) allocated to other divisions according to convention. Contribution to consolidated revenues 145,962 30,007 8,109 184,078 Data for 1996 and 1997 have been restated to take Contribution to consolidated operating margin (2,240) (612) 1,280 (1,572) account of the new alloca- Contribution to consolidated operating income (6,545) (705) 1,263 (5,987) tion agreement implemented during 2nd-half 1998, Contribution to adjusted consolidated pre-tax income(a) (6,447) (922) 1,724 (5,645) backdated to January 1, 1998. Contribution to published consolidated pre-tax income (6,166) (1,133) 1,654 (5,645) Head Office income, which in Total assets 4,565 88,906 18,220 105,949 217,640 1997 included a capital gain on the sale of AB VOLVO Investments in securities (58) 524 106 81 653 shares for FRF 1,230 million, Investments in property, plant, equipment and intangibles 13,550 1,412 1,431 16,393 has likewise been divided between the divisions Depreciation and amortization 9,078 880 671 10,629 according to convention. (b) Interdivision transactions Research and development expenses 7,938 1,187 9,125 are carried out under near- Workforce 111,523 26,049 3,333 140,905 market conditions. GbF Ch 4 - 48/55 Angl.exe 28/04/99 6:53 Page 55

INFORMATION BY GEOGRAPHIC AREA(a) 55

(FRF million) France Other EU Other European Other Consolidated countries countries countries 1998 fiscal year Revenues 216,191 122,865 13,270 30,121 Inter-area eliminations (102,662) (28,774) (5,850) (1,227) Contribution to consolidated revenues 113,529 94,091 7,420 28,894 243,934 Contribution to consolidated operating margin (b) 8,950 2,696 347 602 12,595 Contribution to consolidated operating income 7,553 2,658 267 361 10,839 Contribution to consolidated pre-tax income 8,480 2,609 348 (292) 11,145 Total assets 117,650 73,153 42,673 16,610 250,086 Investments in securities 351 5 12 68 436 Investments in property, plant, equipment and intangibles 9,516 1,714 258 2,978 14,466 Depreciation and amortization 9,251 1,457 205 914 11,827 Workforce 92,854 24,087 5,378 16,002 138,321

1997 fiscal year Revenues 181,822 102,888 10,544 23,297 Inter-area eliminations (82,086) (23,546) (4,341) (666) Contribution to consolidated revenues 99,736 79,342 6,203 22,631 207,912 Contribution to consolidated operating margin (b) 1,206 1,791 144 553 3,694 Contribution to consolidated operating income 242 1,098 137 553 2,030 Contribution to consolidated pre-tax income 1,926 1,114 306 749 4,095 Total assets 121,372 63,986 30,391 14,372 230,121 Investments in securities 795 15 4 814 Investments in property, plant, equipment and intangibles 11,502 2,176 393 1,404 15,475 Depreciation and amortization 8,761 1,383 166 692 11,002 Workforce 95,455 25,220 4,827 15,813 141,315

1996 fiscal year Revenues 165,892 89,733 7,638 14,599 Inter-area eliminations (63,265) (25,998) (3,913) (608) Contribution to consolidated revenues 102,627 63,735 3,725 13,991 184,078 Contribution to consolidated operating margin (b) (5,233) 3,315 100 246 (1,572) (a) The geographic breakdown Contribution to consolidated operating income (6,317) (16) 100 246 (5,987) is based on the areas in which Group companies Contribution to consolidated pre-tax income (6,241) (63) 290 369 (5,645) are located. The break- Total assets 119,403 55,619 36,893 5,725 217,640 down of revenues by sales and marketing area is Investments in securities 650 3 653 given in note 3. Investments in property, plant, equipment and intangibles 13,627 1,936 211 619 16,393 (b) The Group introduced the notion of operating margin Depreciation and amortization 8,590 1,523 177 339 10,629 in 1998. Data for 1996 and 1997 have been restated on Workforce 99,524 27,299 4,599 9,483 140,905 a proforma basis GbF Ch 4 - 56/87 Angl.exe 28/04/99 6:45 Page 56

56 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. ACCOUNTING POLICIES c) For foreign companies whose operations are an integral part of those of the parent, the historical-rate method is The Group financial statements are prepared in accordance applied for non-monetary balance-sheet and income state- with French law and the International Accounting Standards ment items and the translation adjustment is included in the published by IASC, with the exception of Standard 9 which income for the year. requires development costs to be capitalized. Like other international automobile manufacturers, Renault continues to C. TRANSLATION OF FOREIGN CURRENCY expense these costs. TRANSACTIONS

A. CONSOLIDATION At year-end, monetary balances denominated in foreign currencies that have not been hedged are translated at the The consolidated financial statements include the financial year-end rate. The resulting foreign exchange differences, statements of all significant companies controlled directly or together with the exchange gains and losses on transactions indirectly by the Group. in foreign currencies for the year, are recognized in the inco- Companies in which Renault exercises significant influence me statement. Hedged foreign currency operations are over operating and financial policies are included in the translated using the hedged rate. consolidated financial statements on an equity basis. Joint ventures controlled by different groups are proportionately D. REVENUES integrated. Revenues include all income from the ordinary activities of All significant transactions between consolidated companies consolidated companies. It includes proceeds from the sales of and unrealized internal profits are eliminated. goods and services as well as income from sales financing.

a) Sales of goods and services B. TRANSLATION OF THE FINANCIAL STATEMENTS OF FOREIGN SUBSIDIARIES Sales and margin recognition

a) As a general rule, the financial statements of foreign sub- Sales revenue is recognized when vehicles are made available sidiaries are translated as follows: to the distribution network in the case of non-Group dealers, or • Balance-sheet items, with the exception of shareholders' upon delivery to the end-user when the delivery is direct. The equity, are translated at the year-end rate of exchange. margin on sales is recognized immediately for cash sales and • Income-statement items are translated at the average when financing arrangements (leasing, long-term lease opera- exchange rate of the year. tions) are considered as loans. However, the sale is not reco- • The translation adjustment is included in consolidated gnized if the vehicle is covered by a leasing contract issued by shareholders' equity and has no effect on the result. a Group-owned finance company, when the Group has made a buy-back commitment. These vehicles are entered as assets b) The financial statements of foreign subsidiaries operating under operating leases and depreciated over their probable in high-inflation economies (i.e. with an inflation rate over duration of use. A provision is recognized on delivery if the three years in excess of 100%) are translated as follows: repurchase value appears likely to exceed the probable resale • Balance sheet items are translated into French francs at value. the year-end rate used for the transfer of dividends after adjusting non-monetary items for local inflation. Product warranty costs • After adjustment for inflation on monetary items, items in Estimated or incurred costs related to product and part war- the income statement are translated using the same year- ranty are expensed at the time of the sale of the products end rate as for the balance sheet. and parts. Renault also offers its customers extended war- • The translation adjustment is included in consolidated ranty and maintenance contracts, the income and result of shareholders' equity and has no effect on the result. which are recognized over the period during which the service is to be provided. GbF Ch 4 - 56/87 Angl.exe 28/04/99 6:45 Page 57

Sales incentive programs F. PENSIONS AND OTHER POST-RETIREMENT BENEFITS All expenses related to these programs are deducted from revenues when the corresponding sales are registered. The cost of retirement indemnities, pensions and other post- Programs approved after the sale in question are provisioned retirement benefits (health care of former employees, other as approved. benefit costs) is entered as these vested benefits are earned by employees. These rights are determined at the end of The Group implements promotional programs in the form of each fiscal year on the basis of seniority, and the likelihood of reduced interest rates on financing offered to end-users. This the person being employed by the company at retirement cost is recognized immediately when the rates offered are age or at the minimum age required for eligibility in case below market rates, in other words when they do not cover where certain benefits are irrevocably acquired before that refinancing and handling costs. date. The liability is calculated on an actuarial basis, using b) Sales financing assumptions concerning future salary levels, retirement age and the return on plan assets. The effects of changes in this The sales financing companies in the Group mainly finance actuarial basis for calculation are recognized only when they the sale of automobiles and commercial vehicles to dealers lead to a revaluation of the provision for these liabilities of or end-users. Financing is provided in the form of standard more than 10%; they are then recognized over the remaining loans or leasing arrangements, including long-term lease years of service of employees who are still with the company. operations. Except where the Group is committed to repurchase leases vehicles, financing is treated as credit and When the terms of pension and post-retirement benefits recorded on the balance sheet at the nominal amount of the change, the effects of these modifications is spread over the non-reimbursed capital with a deduction for any provisions. remaining years of service of employees, in the case of Income from sales financing is calculated so as to yield a employees who are still active. In the case of retired persons, constant interest rate over the contract period. the corresponding effect is recognized in full in the results for the period during the course of which the modification Commissions payable was implemented. Commissions are recognized when financing is granted to customers. G. RESTRUCTURING MEASURES

Credit losses The estimated cost of restructuring measures (workforce adjustments, industrial reorganization, etc.) is recorded as an Allowances for credit losses are made as soon as these recei- expense as soon as such measures receive final approval. vables are deemed to be uncollectable. Provisions are determined on a case-by-case basis or using a statistical approach. H. OPERATING MARGIN E. RESEARCH AND DEVELOPMENT The concept of "operating margin" was introduced into the EXPENSES Group accounts in 1998. Operating margin corresponds to Research and development expenses are defined as resear- operating income before the following: ch, development and production costs relating to new pro- – costs and provisions for restructuring, ducts. They are recorded in the costs for the fiscal year in – gains and losses on the disposal of property, plant and which they are incurred. equipment and intangible assets (excluding sales of vehicles), – income and expenses arising from transactions on investment (disposals, amortization of goodwills in particular), – unusual items corresponding to income and expenses that are unusual in their frequency, nature or amount. GbF Ch 4 - 56/87 Angl.exe 28/04/99 6:45 Page 58

58 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

I. OPERATING INCOME Applying the IAS 12 standard, as amended with effect from January 1, 1998, the Group now offsets deferred tax assets The definition of operating income is unchanged from pre- and liabilities by tax grouping in its presentation of the vious years. It includes all revenues and costs directly rela- consolidated balance sheet. This measure has been retroacti- ted to the ongoing activities of the Group, whether recurring vely applied to the 1996 and 1997 financial statements. or resulting from one-off decisions or operations, such as restructuring costs. Unusual items, defined as relating to Retained earnings of consolidated subsidiaries may give rise revenues and costs that are unusual owing to their frequen- to the appropriation of a provision for taxes on dividends, cy, nature and amount, are included in income from ordinary unless dividend payment is unlikely. activities. Income from financial transactions, from companies accounted for by the equity method, or any extraordina- K. EARNINGS PER SHARE ry income is not included. Extraordinary items are strictly Renault's earnings per share is calculated using the weighted defined and correspond to revenues and costs of significant average number of outstanding shares, corresponding to the amounts that are due to events beyond the Group's control. shares making up the share capital after deduction of treasury For companies providing financing to customers of the Group stock. (dealers or end-users): – income from sales financing is included in revenues, L. PROPERTY, PLANT AND EQUIPMENT – the net financing costs of sales is considered to be an ope- Property, plant and equipment are carried at historical or pro- rating expense and included in operating margin. It includes duction cost. Design expenses are included in the cost of produc- primarily the interest incurred by sales financing companies, tion, together with costs relating to financing which are borne other costs and income directly related to the handling of during the period of construction. sales financing (temporary investments, hedging and management of interest rate and foreign currency risks), cost of Repair and maintenance costs are recognized as expenses, risk associated with financing of receivables, depreciation of except those incurred to increase productivity or to prolong the assets on operating leases as well as the gains and assets on life of an asset. disposals of leased assets. Leased equipment is recorded as an acquisition when the lease terms are similar to those of a purchase carried out on credit. J. INCOME TAX Depreciation is calculated on a straight-line basis over the follo- The Group recognizes deferred taxes for all temporary diffe- wing estimated useful lives: rences between tax and net carrying values of assets and lia- In use prior to 1987 In use since 1987 bilities on the consolidated balance sheet. Using the variable carry-forward method, deferred taxes are calculated by Buildings 15 to 40 years 15 to 30 years applying the last tax rate in force. Deferred tax assets are Special tools 5 years recorded on temporary differences and on losses or credits Machinery and equipment 5 to 16 years 5 to 10 years that may be brought forward, and are written down when Other tangible assets 4 to 6 years their future realization is unlikely. GbF Ch 4 - 56/87 Angl.exe 28/04/99 6:46 Page 59

M. MARKETABLE AND OTHER SECURITIES calculated using the FIFO (first in first out) method. Income on long-term contracts is recognized on the percentage-of-com- Equity securities pletion method. Provisions are established for probable losses Equity securities in non-consolidated companies are presented in the fiscal year in which they become known. on the balance sheet at their acquisition price, excluding accessory purchasing costs, with the deduction of any provi- P. CASH AND CASH EQUIVALENTS sions made. The corresponding dividends are booked in the This item consists of cash and marketable securities matu- year in which they are distributed. ring within three months of the acquisition date. Provisions are recognized when the fair value of the investments falls below their cost of acquisition. The fair value is Q. DISPOSALS OF RECEIVABLES determined by taking into account likely future profitability, Receivables sold to third parties (through securitization or dis- the commercial opportunity that the investment represents counting) are removed from the Group's assets when the risks for the Group, and the share in net assets. and rewards of ownership are also transferred to these third Debt securities parties.

Debt securities include only fixed income securities acquired R. BORROWING with the intention of being held on a long-term basis, usually until maturity. These securities are either hedged by interest Loan costs including issuance costs rate futures to protect them from interest rate exposure in the Loan costs, including issuance costs, and bond redemption long term, or supported by long-term financing enabling them to premiums are amortized over the corresponding loan period. be held until maturity. Renegotiations of loans Discounts and premiums are amortized on a straight-line basis over the remaining life of the security. Provisions for loss are Expenses arising from the renegotiations of loans or similar established when there is a likelihood of the issuer defaulting. operations intended to bring interest payments to a level close to market rates are recorded as financial expenses in the Marketable securities accounts for the year the negotiation was conducted. Marketable securities are valued at the cost of acquisition excluding accessory purchasing costs and, for bonds, interest S. FINANCIAL INSTRUMENTS already carried, or at their market value if this is lower. To manage its exchange rate risk, the Group uses forward foreign exchange contracts, currency swaps and, to a lesser N. TREASURY STOCK extent, options. Forward contracts are recognized as hedges Shares in the common stock of the parent company held on a insofar as they are designated as such. These hedges may long-term basis by consolidated companies are taken to redu- cover the net investment of the Group in certain foreign subsi- ce consolidated shareholders' equity at their purchase price. diaries, receivables or debts denominated in foreign currencies, or firm foreign currency commitments. These instru- Profit or loss on the sale of these shares is recorded directly ments generally mature within two years. The contracts are in consolidated retained earnings. treated as off-balance-sheet financial instruments, with related gains and losses recorded in the settlement of the under- O. INVENTORIES lying transactions. In the event of early termination of a hed- Inventories are stated at the lower of cost or net realizable ging contract, the gain or loss continues to be deferred and is value. Cost corresponds to acquisition or production cost. included in the settlement of the underlying transaction. Gains Production cost includes direct and indirect production and losses on instruments that hedge net investments in foreign expenses and a share of fixed costs associated with manufac- subsidiaries are recognized as an adjustment directly in share- turing, based on a normal level of activity. Cost is generally holders’ equity. GbF Ch 4 - 56/87 Angl.exe 28/04/99 6:46 Page 60

60 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The Group's general policy with respect to interest rate risk Except as regards revenues, changes in the scope of consoli- is not to specifically hedge transactions, but to manage dation have no significant effect on the Group's accounts. interest rate exposure on a comprehensive basis using inter- Consolidated revenues for 1998 take into account: est rate swaps, forward interest rate contracts and currency swaps. – FRF432 million corresponding to the effects of full consolidation of Heuliez Bus from January 1, 1998 (the company was Interest rate swaps are treated as off-balance-sheet financial previously accounted for by the equity method). instruments and the resulting interest differentials are recorded as an adjustment to interest expense. In the event of ear- – FRF302 million corresponding to the effects of first-time ly termination of a rate swap, gains and losses are deferred consolidation of Renault Trucks Polska. and modify the interest cost over the remaining term of the Consolidated revenues for 1997 take into account: underlying debt. The underlying capital gains or losses on forward interest- – FRF2,626 million corresponding to the effect of full consoli- rate contracts that are designated as hedges are used to dation of the Renault Argentina group from June 30, 1997; adjust the interest expense for the duration of the underlying until then the group was accounted for by the equity method debt. For other contracts, only the underlying losses are via the Cofal holding company. recognized in the results. – FRF802 million corresponding to the effect of first-time The Group also uses commodity futures to hedge its pur- consolidation of the sales subsidiaries in Central Europe chases. Insofar as the Group is able either to settle certain (Renault Polska, Renault Ceska and Renault Hongaria). transactions by a payment, or to take physical delivery of the Consolidated revenues for 1996 take into account: underlying commodities, these contracts are not treated as financial instruments. – for the Automobile Division, the first-time consolidation of the French sales subsidiaries (FRF1,073 million) and of 2. CHANGE IN THE SCOPE Renault Retail Group (FRF1,019 million), and the entry of OF CONSOLIDATION Renault Comercial do Brasil (FRF480 million); – for the Commercial Vehicles Division, the entry of Karosa The scope of consolidation can be broken down as follows: (FRF514 million). Number of subsidiaries 1998 1997 1996 Fully consolidated 184 181 168 Change in the scope of consolidation after the year-end Proportionately integrated 11 12 9 Renault V.I. signed an agreement with Iveco regarding a joint Equity method 36 37 47 venture to handle the coach and bus activities (i.e. design, 231 230 224 production and marketing) of both groups. This agreement resulted in the formation of IRIS.BUS on January 1, 1999. Renault V.I. owns 50 % of the joint venture.

Renault has signed an agreement with Fiat to merge all the foundry operations of the two groups. When this operation is complete, Renault will hold 33.5 % of the new entity. GbF Ch 4 - 56/87 Angl.exe 28/04/99 6:46 Page 61

3. REVENUES

In terms of revenues, the relationship between the country in which companies are located and their marketing areas breaks down as follows (figures in FRF million): Company location 1998 France European Other European Other Total Union countries countries Sales and marketing area France 93,866 270 1 17 94,154 European Union 7,926 93,709 5 4 101,644 Other European countries 1,611 108 7,414 5 9,138 Other countries 10,126 4 28,868 38,998 Total 113,529 94,091 7,420 28,894 243,934

Company location 1997 France European Other European Other Total Union countries countries Sales and marketing area France 81,701 142 24 109 81,976 European Union 6,437 78,866 3 7 85,313 Other European countries 1,476 240 5,995 4 7,715 Other countries 10,122 94 181 22,511 32,908 Total 99,736 79,342 6,203 22,631 207,912

Company location 1996 France European Other European Other Total Union countries countries Sales and marketing area France 84,608 116 53 5 84,782 European Union 5,705 62,816 2 8 68,531 Other European countries 2,648 757 3,495 20 6,920 Other countries 9,666 46 175 13,958 23,845 Total 102,627 63,735 3,725 13,991 184,078 GbF Ch 4 - 56/87 Angl.exe 28/04/99 6:46 Page 62

62 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

4. SALES FINANCING Restructuring costs and provisions are mainly to allow for Revenues measures to reorganize certain operations and to adjust (in millions of French francs) 1998 1997 1996 workforce levels.

Retail and dealer financing 4,336 4,356 4,326 In 1998 this item was chiefly composed of manpower plans Leasing, rentals for foreign companies (FRF588 million) and French compa- and similar operations 3,502 3,519 3,729 nies (FRF394 million) as well as the net effect of the conti- Total 7,838 7,875 8,055 nued implementation of other restructuring measures by the Automobile Division.

Costs In 1998 Renault S.A. made no new provisions for manpower (in millions of French francs) 1998 1997 1996 plans. Net credit losses (402) (263) (317) In 1997 this item was mainly composed of Renault S.A.'s Other sales financing costs (4,588) (4,246) (4,389) manpower plan (FRF425 million) and the net effect of the Total (4,990) (4,509) (4,716) continued implementation of other restructuring measures by the Automobile Division.

In 1996 they primarily entailed the cost of stopping the acti- 5. OTHER OPERATING INCOME vity of the Renault Industrie Belgique (RIB) Vilvoorde factory AND EXPENSES, NET (FRF2,419 million) and costs involved in Renault S.A.'s man- (In millions of French francs) 1998 1997 1996 power plan (FRF795 million). Restructuring costs and provisions (1,600) (1,544) (3,906) 6. PERSONNEL COSTS Gains and losses on disposals (In millions of French francs) 1998 1997 1996 of tangible and intangible Automobile Division 28,879 28,459 27,243 long-term assets (excepting sales Commercial Vehicles Division 7,342 6,936 6,595 of vehicles) (406) (319) (505) Finance Division 1,203 1,214 1,167 Gains and losses Total 37,424 36,609 35,005 on transactions in investments in operating activities 145 336 20 The total level of remuneration for Renault Group Executives (members of the Group's Executive Committee) was FRF20.5 Items of an unusual nature or abnormally million in 1998. high amount 70 (37) (24) Remuneration of members of the Board of Directors totaled Total (1,756) (1,664) (4,415) FRF2 million in 1998 and FRF2 million in 1997.

7. FINANCIAL INCOME Following the introduction of the "operating margin" concept, foreign exchange differences on trading operations Net interest income (expense) can be broken down as follows: as well as proceeds from sales of vehicles, which were pre- (In millions of French francs) 1998 1997 1996 viously carried as "Other operating income and expenses", Interest expense (2,068) (2,656) (2,903) are now recorded as "Costs of goods and services sold". The Interest income 2,390 2,887 2,906 figures for 1996 and 1997 have been adjusted accordingly. Gain on marketable securities 20 58 62 Total 342 289 65 GbF Ch 4 - 56/87 Angl.exe 28/04/99 6:46 Page 63

In 1998 financial costs amounted to FRF248 million,, the cost A. The current taxes of Group companies are taxes payable of the interest rate swap intended to bring the rate of inter- to the tax authorities for the fiscal year. This amount is est on the 1992 bond issue into line with market rates. determined according to the tax legislation and rate in effect in the various countries. Other financial income and expense includes: (In millions of French francs) 1998 1997 1996 B. The valuation allowance for deferred tax assets is determined taking into account the probability of recovery of defer- Income from participations red tax assets over time, and the characteristics of the in non-Group companies 47 1,716 252 worldwide "consolidated profits" reporting system. In view of Other financial the Group's earnings prospects, the valuation made in pre- income and expenditure 5 13 7 vious years has been revised. Only the proportion of these Total 52 1 729 259 allowances relating to minority interests in subsidiaries not taken into account in the worldwide "consolidated profits" In 1997, income from non-Group investments included FRF419 regime has been left unchanged. million in capital gains from the sale of Elf Aquitaine shares by The table below shows the reconciliation between the French the Finance Division and FRF1,230 million in capital gains corporate tax rate on income and the Group's effective tax rate: from the sale of AB Volvo shares by Renault S.A. head office. 1998 1997 1996 French corporate 8. CURRENT AND DEFERRED TAXES income tax rate 36.6% 36.6% 36.6% Items eligible By applying the worldwide "consolidated profits" tax regime, for reduced rate of taxation (2.1%) (15.2%) 3.1% which was extended on January 1, 1998 for a period of three Appropriation/reversal years, Renault bases its taxes on the taxable earnings of most of valuation allowances of its subsidiaries and companies in which it has holdings, for deferred tax assets (17.4%) (36.7%) (33.0%) French and foreign, calculated under this regime. Against the Other items 4.2% (17.5%) tax liability corresponding to this taxable earnings figure, the EFFECTIVE TAX RATE 21.3% (32.8%) 6.7% tax paid by these companies can, within certain limits, be offset.

Moreover, Renault has elected to determine French income The breakdown of the effective tax rate is made by reference taxes on a consolidated basis, including French subsidiaries to the French corporate tax rate, currently 36.6%, although held at more than 95%. the rate under the worldwide "consolidated profits" regime is 33.3%. The French corporate tax rate is subject to temporary It is on this basis that the Group's current and deferred taxes surcharges, bringing it to 41.6% for 1998 and 40% for 1999. were determined as follows: Such surcharges apply only to the Group entities liable for (In millions of French francs) 1998 1997 1996 tax in France. The resulting revisions to deferred taxes are Income taxes not significant. This temporary surcharge has increased the currently payable (4,444) (964) (1,073) income tax currently payable by FRF214 million in 1998. Deferred tax credits 134 804 3,315 Change in provisions The capital gains on disposals in 1997 resulted from one-off for loss of value disposals of investments. on deferred taxes and assets 1,935 1,503 (1,863) Net deferred tax credits 2,069 2,307 1,452 Current and deferred taxes (2,375) 1,343 379 GbF Ch 4 - 56/87 Angl.exe 28/04/99 6:46 Page 64

64 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

On the balance sheet, deferred taxes are broken down as fol- 9. PROPERTY, PLANT lows: AND EQUIPMENT (In millions of French francs) 1998 1997 1996 (In millions of French francs) 1998 1997 1996 Land 2,173 2,148 2,015 Fixed assets (3,315) (3,237) (3,558) Buildings 26,131 25,942 23,666 Provisions and other accrued expenses Special tools 30,577 31,143 27,686 deductible only on payment 6,192 5,868 6,074 Machinery and equipment 61,130 61,428 54,893 Inter-company eliminations 4,234 4,455 3,661 Other tangibles 11,327 11,450 10,510 Valuation allowance (162) (2,265) (3,544) Construction in progress 5,984 5,564 7,453 Net deferred tax assets Gross value 137,322 137,675 126,223 (liabilities) 6,949 4,821 2,633 Land and buildings (12,963) (12,296) (10,970) Special tools (21,216) (21,167) (20,244) Machinery and equipment (37,979) (37,865) (33,301) The revised IAS 12 standard relating to corporate income tax Other tangible assets (7,442) (7,567) (6,604) has been applied for the first time in 1998. This standard Depreciation and amortization (79,600) (78,895) (71,119) states that deferred tax assets and liabilities must be offset in the presentation of the balance sheet by tax grouping. This Net value 57,722 58,780 55,104 standard has been applied retroactively to the financial state- Changes in property plant and equipment for the fiscal year ments for 1996 and 1997 in the amount of FRF3,161 million and were as follows: FRF3,034 million respectively. (In millions of French francs) Gross Depreciation Net Moreover, on December 31, 1998 the Group has a capital loss value value carryover of FRF3,973 million on capital gains taxable at the Value on December 31, 1995 118,304 (65,617) 52,687 reduced rate. These capital losses may be set against lower- Acquisitions/(depreciation) 15,169 (11,286) 3,883 rate taxable earnings up to and including 2002. (Disposals)/reversals (7,959) 6,050 (1,909)

The total difference between the share of shareholders' equity Translation adjustment 242 (39) 203 in Group companies and the tax value of investments on Change in scope of consolidation 467 (227) 240 December 31, 1998 is FRF11,383 million. Value on December 31, 1996 126,223 (71,119) 55,104 Acquisitions/(depreciation) 13,552 (10,200) 3,352 (Disposals)/reversals (7,894) 5,887 (2,007) Translation adjustment 1,169 (552) 617 Change in scope of consolidation 4,625 (2,911) 1,714 Value on December 31, 1997 137,675 (78,895) 58,780 Acquisitions/(depreciation) 12,952 (11,221) 1,731 (Disposals)/reversals (11,228) 9,170 (2,058) Translation adjustment (844) 380 (464) Change in scope of consolidation (1,233) 966 (267) Value on December 31, 1998 137,322 (79,600) 57,722

Owing to the reduced levels of debt in industrial and commercial activities (note 26), the Group has not capitalized interim interest during the 1998 fiscal year.

Interim interest capitalized during the 1997 fiscal year amounted to FRF304 million FRF197 million in 1996. GbF Ch 4 - 56/87 Angl.exe 28/04/99 6:46 Page 65

The "change in scope of consolidation" entry includes: 11. INVESTMENT IN COMPANIES AT EQUITY – in 1998, (FRF245 million) as a result of the change from full (In millions of French francs) 1998 1997 1996 consolidation to equity-method accounting following the partial disposal of Société de Transmissions de Bouthéon, repre- Maïs 374 391 94 senting a gross amount of (FRF618 million) and FRF373 mil- Sofasa 17 64 59 lion in amortization, Cofal Group 400 Société de Transmissions – in 1997, FRF1,582 million as a result of the full consolidation de Bouthéon 91 of the Renault Argentina Group on June 30, 1997, represen- Other 287 257 204 ting a gross amount of FRF4,501 million and FRF2,919 million Total 769 712 757 in amortization.

In the course of 1998 Renault Véhicules Industriels sold 60% 10. ASSETS UNDER OPERATING of Société de Transmissions de Bouthéon. This company, for- LEASE merly fully consolidated, is now accounted for by the equity method. Assets under operating lease correspond to vehicles under long- term leases due to be sold at the end of the leasing period. Changes In the course of 1997, Renault acquired an additional 29% in this item were as follows: stake in Maïs, taking its holding from 20% to 49%. (In millions of French francs) Gross Depreciation Net value value Cofal has been fully consolidated since June 30, 1997.

Value on December 31, 1995 3 011 (1 122) 1 889 Changes in this item were as follows: Acquisitions/(depreciation) 1 157 (569) 588 (In millions of French francs) 1998 1997 1996 (Disposals)/reversals (1 296) 618 (678) Balance on January 1 712 757 890 Value on December 31, 1996 2 872 (1 073) 1 799 Change in scope of consolidation 95 (364) (106) Acquisitions/(depreciation) 1 192 (545) 647 Change in translation (Disposals)/reversals (1 246) 599 (647) adjustment and other changes (11) 247 13 Dividend distribution (22) (13) (93) Value on December 31, 1997 2 818 (1 019) 1 799 Increase in capital 83 15 13 Acquisitions/(depreciation) 1 007 (508) 499 Income (88) 70 40 (Disposals)/reversals (1 244) 585 (659) Balance on December 31 769 712 757 Value on December 31, 1998 2 581 (942) 1 639 GbF Ch 4 - 56/87 Angl.exe 28/04/99 6:46 Page 66

66 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The figures for all companies accounted for by the equity method were as follows: Automobile Division Commercial Vehicles Division (In millions of French francs) 1998 1997 1996 1998 1997 1996 Sales 7,033 7,425 10,780 1,662 1,452 1,749 Net income (267) 36 113 14 (18) 3 Shareholders' equity 1,044 1,320 2,084 404 130 139 Balance sheet total 3,762 3,325 3,559 443 717 822

12. OTHER SECURITIES The breakdown of finance receivables by geographical area is (In millions of French francs) 1998 1997 1996 as follows: (In millions of French francs) 1998 1997 1996 Investments in majority-owned subsidiaries 892 989 992 France 22,603 21,798 23,631 Investments held Other EU countries 48,048 41,520 33,767 at 20 to 40% 155 120 102 Other countries 832 691 410 Investments held Total 71,483 64,009 57,808 at less than 20% 633 646 2,311 Other investments, gross 1,680 1,755 3,405 Provisions (585) (551) (508) Maturities are as follows: Net value 1,095 1,204 2,897 (In millions of French francs) 1998 1997 1996 Less than one year 38,194 35,023 31,413 The net value of investments in majority-owned subsidiaries was One to five years 33,165 28,858 26,281 FRF476 million in 1998, FRF544 million in 1997 and FRF571 mil- Greater than five years 124 128 114 lion in 1996. Total 71,483 64,009 57,808 On December 31, 1998, the main listed investment was the following: 14. INVENTORIES Name of the company % held Net value Market value of the securities held of the listed (In millions of French francs) 1998 1997 1996 securities BNP 1 % 427 789 Inventories at cost 28,195 26,329 23,822 Provisions (1,810) (1,976) (2,159) On December 31, 1996, investments held at less than 20% Inventories, net 26,385 24,353 21,663 included the value of the Group's investments in AB Volvo and Elf Aquitaine: FRF679 million and FRF1,022 million respectively. These holdings were sold during the 1997 fiscal The net value of inventories is stated below: year (note 7). (In millions of French francs) 1998 1997 1996 Raw materials and supplies 4,839 4,413 3,715 13. FINANCE RECEIVABLES Work-in-progress 3,308 3,103 2,665 (In millions of French francs) 1998 1997 1996 Finished products Dealer financing 17,181 14,779 13,524 and parts for automobiles 13,042 11,342 10,464 Retail financing 36,060 33,109 29,594 Finished products and parts for commercial vehicles 3,850 3,545 3,479 Leasing and similar operations 20,992 19,034 17,909 Other finished products and parts 1,293 1,798 1,260 Gross finance receivables 74,233 66,922 61,027 Long-term leases 53 152 80 Provisions for credit losses (2,750) (2,913) (3,219) Total 26,385 24,353 21,663 Net finance receivables 71,483 64,009 57,808 GbF Ch 4 - 56/87 Angl.exe 28/04/99 6:46 Page 67

15. ACCOUNTS 18. MARKETABLE SECURITIES AND NOTES RECEIVABLE (In millions of French francs) 1998 1997 1996 Accounts and notes receivable can be broken down as follows : Gross value 1,990 1,890 1,193 (In millions of French francs) 1998 1997 1996 Less provisions (1) (1) (2) Accounts Marketable securities, and notes receivable 20,071 18,387 16,916 net 1,989 1,889 1,191 Provisions (1,039) (1,013) (1,003) Accounts This item does not include marketable securities considered and notes receivable, net 19,032 17,374 15,913 as cash equivalents, which amounted to FRF437 million in 1998, FRF853 million in 1997, and FRF630 million in 1996. This item does not include accounts receivable from dealers, which in France and several other European countries, are 19. SHAREHOLDERS' EQUITY sold to the Group's financial subsidiaries or other financial institutions whenever the risk of noncollection is transferred Movements in shareholders' equity: to those subsidiaries and institutions. In such cases, they are (In millions of French francs) 1998 1997 1996 recorded under accounts and notes receivable. If risk is not Shareholders' transferred, they are recorded in accounts receivable even equity on January 1 43,917 37,770 43,796 though, for legal purposes, the receivable itself has been sold. Par value of shares issued 20 Share premium account 80 16. OTHER RECEIVABLES Dividend (note 19-A) (836) (837) AND PREPAID EXPENSES Change in translation adjustment and other (427) 627 (41) (In millions of French francs) 1998 1997 1996 Treasury stocks 61 93 Bond issuance costs Net income 8,847 5,427 (5,248) and redemption premiums 158 204 197 Shareholders' Pre-paid expenses 2,818 3,260 3,005 equity on December 31 Tax receivables 4,669 5,974 3,971 (before allocation) 51,562 43,917 37,770 Other receivables 3,966 4,682 3,205 Total 11,611 14,120 10,378 A. The Annual General Meeting of Shareholders of June 11, 1998 decided to distribute FRF836 million in dividends (FRF3.50 per share).

17. INVESTMENT LOANS The Annual General Meeting of Shareholders of June 7, 1996 voted to distribute a dividend of FRF837 million (FRF3.50 Investment loans primarily consist of interbank loans by finan- per share). Of this, FRF100 million was paid in shares, pur- cial companies and correspond principally to the investment of suant to the option offered by the Annual General Meeting of cash surpluses from industrial and commercial activities: June 7, 1996. Accordingly, the company's share capital (In millions of French francs) 1998 1997 1996 increased by FRF20 million through the issue of 790,154 new Maturity over one year 1,487 1,410 1,843 shares (par value FRF25) at FRF127. Maturity of less than one year 38,919 24,959 34,464 B. The Joint General Meeting of June 11, 1998 authorized the Total 40,406 26,369 36,307 Board of Directors to convert stock options, on one or more GbF Ch 4 - 56/87 Angl.exe 28/04/99 6:46 Page 68

68 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

occasions, held by senior managers of the company and its 20. MINORITY INTERESTS associated companies. Such options give the right to subscribe (In millions of French francs) 1998 1997 1996 for new shares issued by the company in connection with a Minority interests capital increase, or to purchase shares acquired by the com- as at January 1 4,456 2,026 2,154 pany though buybacks, pursuant to applicable laws and regu- Dividends (208) (126) (83) lations. Shares held as treasury stock by Renault S.A., pre- Change viously taken to reduce shareholders' equity, have been in translation adjustment (231) 144 55 earmarked for this resolution and recorded as marketable Change securities. in scope of consolidation 400 2,401 (82) Minority interest in profits (77) 11 (18) On December 31, 1998 the Group no longer held treasury Minority interests stock on a durable basis. as at December 31 4,340 4,456 2,026

C. Reserves include a nondistributable statutory reserve of The following items have been recorded under "Change in FRF599 million on December 31, 1998, FRF460 million on method of consolidation and other changes in company December 31, 1997 and FRF460 million at December 31, structure": 1996. – in 1998, the capital increases subscribed by the minority sha- D. As a result of these transactions, Renault S.A.'s share reholders of Renault do Brasil Automóveis (FRF279 million) capital breaks down as follows: – in 1997, the full consolidation of Cofal and Renault Argentina Number of % of voting Security on June 30, 1997 (FRF1,935 million), the dilution of minority securities held rights type interests following the capital increases of Cofal, subscribed French state 106,037,141 44.22 Shares solely by Renault (FRF1,772 million), and the capital increases Protocol subscribed by the minority shareholders of Renault do Brasil and associated Automóveis (FRF478 million) shareholders(a) 17,247,320 7.19 Shares Others(b) 116,514,106 48.59 Shares Total 239,798,567 100.00 21. REDEEMABLE SHARES (a) On November 21, 1994 the protocol shareholders signed an agreement whereby they retained (In millions of French francs) 1998 1997 1996 their entire stake for three months and 80% of the stake for the subsequent 21 months. During the three years following this initial 24-month period (i.e. until November 20, 1999), Redeemable shares any sale involving all or part of that 80%, either to a third party or to another protocol sha- Renault S.A. 1983 1,000 1,000 1,000 reholder, would be subject to the preemptive rights of the other partner shareholders. (b) Renault employees, former employees, legal beneficiaries and general public. Redeemable shares Renault S.A. 1984 1,085 1,085 1,085 Redeemable shares Diac 1985 232 232 232 Redeemable shares outstanding 2,317 2,317 2,317 The redeemable shares issued in October 1983 and April 1984 by Renault S.A. can be redeemed with a premium on the sole initiative of Renault from 1998. The shares earn a minimum annual return of 9% composed of a fixed portion (6.75%) and a variable portion that depends on consolidated revenues and that is calculated at comparable structure and methods. Returns to the shares in 1998 amount to FRF223 million (FRF213 millions in 1997 and FRF212 million in 1996) and are carried under financial charges. The redeemable shares are listed on the Paris Bourse. In the course of 1998, the shares, which have a par value of FRF1,000, traded at between FRF3,197 and FRF1,780, ex-coupon. GbF Ch 4 - 56/87 Angl.exe 28/04/99 6:46 Page 69

The return on the redeemable shares issued by Diac in 1985 B. Depending on the laws and practices prevailing in different comprises a fixed portion equal to the annual money-market countries, the Renault Group usually contributes to its rate (TAM) and a variable portion obtained by applying the year- employees' retirement income by making earnings-related on-year increase in Diac's consolidated net income to 40% of payments to the national organizations responsible for the TAM. paying old-age financial benefits. At present, there is no actuarial liability concerning these pension arrangements. The total market value of the redeemable shares, based on the year-end closing price, was FRF5,730 million in 1998. In addition, some of the Group's companies have granted additional benefits to their employees. These supplementary 22. PROVISIONS FOR PENSIONS benefits, which usually accrue to employees in the course of AND OTHER POST-RETIREMENT their service with the company, consist either of a retirement BENEFITS bonus (in France and most other countries in which the Renault Group operates ) or pension payments (chiefly in the A. These provisions are broken down as follows (FRF million): USA and Germany).

1998 French Foreign Total As regards pensions, contributions are made to external fund companies companies managers. The aim of such funds is to cover all or part of Provision pension payments made to employees during retirement. for pension commitments 4,207 499 4,706 These commitments are periodically reviewed by indepen- Provision dent actuaries. The value of these funds is deducted from the for medical expenses 2,392 2,392 liability to which they are irrevocably allocated. Total 4,207 2,891 7,098 The assumptions used by French companies are as follows: 1997 French Foreign Total 1998 1997 1996 companies companies Retirement age 60 yrs 60 yrs 60 yrs Provisions Salary level 3.5% to 4% 3.5% to 4% 3.5% to 4% for pension commitments 4,024 429 4,453 Discount rate 6.5% 6.5% 6.5% Provision for medical expenses 2,559 2,559 Total 4,024 2,988 7,012 The assumptions used by the US subsidiary Mack Trucks, 1996 French Foreign Total Inc., the main foreign entity having significant pension com- companies companies mitments, are as follows: Provisions 1998 1997 1996 for pension commitments 3,652 472 4,124 Discount rate 8% 8% 8% Provision Return on plan assets 9.5% 10.5% 10.5% for medical expenses 2,248 2,248 Total 3,652 2,720 6,372 GbF Ch 4 - 56/87 Angl.exe 28/04/99 6:46 Page 70

70 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The Group's pension commitments are broken down as follows: (In millions of French francs) 1998 1997 1996

Vested benefits of employees of French companies 5,277 5,248 4,931 Unrecognized transition obligations (1,070) (1,224) (1,279) Provisions for pension and other post-retirement benefits in French companies 4,207 4,024 3,652 Vested benefits of employees of Mack Trucks, Inc. 4,035 3,897 3,408 Unrecognized transition obligation (278) (342) (538) Fair value of plan assets (4,075) (3,957) (3,069) Other items 178 287 181 Pension provisions at Mack Trucks, Inc. (140) (115) (18) Provisions for pension and other post-retirement benefits relating to foreign companies 639 544 490 Total 4,706 4,453 4,124

In view of the sharp fall in the interest rates used to discount Medical costs and other costs for the year break down as fol- the pension commitments of the Group's French companies, lows: provisions were revised at January 1, 1996. In accordance with (In millions of French francs) 1998 1997 1996 the Group's accounting principles, the effect has been spread Additional over the remaining years of service of employees who are still benefits acquired 22 22 18 with the company. Discount effect 195 195 173

C. In addition to the pension commitments described above, Net cost during the year 217 217 191 Mack Trucks, Inc. is committed to bearing the cost of employees' medical costs and life insurance. These costs are The rate of cost growth in medical and other expenses in these accounted for in accordance with the method described in plans has been assumed to be declining to the annual limits Note 1-F. per employee set in labor agreements in 1992, falling gradually to 7% in 2001 for the larger of the plans and to 9% in The amounts booked for these plans are broken down as follows: 1996 for the other plan. Beyond these dates, the labor agree- (In millions of French francs) 1998 1997 1996 ments effectively eliminate the growth in the employer's Accumulated commitments share of medical expenses. • Retired employees 1,598 1,712 1,472 • Active employees 794 847 776 Provisions for commitments 2,392 2,559 2,248 GbF Ch 4 - 56/87 Angl.exe 28/04/99 6:46 Page 71

By way of example, a 1% annual increase in the above rates In recent years, the Group has adopted a number of restruc- would have resulted in a FRF25 million increase in the liabili- turing measures in order to streamline production facilities. ty and the annual cost in 1998, composed of the sum of the These measures have chiefly involved workforce reductions vested benefits earned during the year and the discount in the form of early retirement, guaranteed income arrange- effect of FRF2 million. The weighted average rate used to ments, internal and external reassignments and redundan- calculate the present value of liabilities remained unchanged cies. In 1998, FRF1,287 million in new provisions was booked at 8% between 1997 and 1998. (FRF1,220 million in 1997 and FRF2,957 million in 1996). A total of FRF1,542 million in restructuring provisions was utili- 23. OTHER PROVISIONS zed in 1998 (FRF1,759 million in 1997 and FRF1,061 million in FOR RISKS AND LIABILITIES 1996). The increase in provisions for product warranty costs and Other provisions for risks and liabilities break down as follows other provisions is attributable to the increase in sales (FRF million): volumes, changes in commercial terms and conditions and, 1998 Over Under Total one year one year with respect to 1997, changes in the scope of consolidation. Provisions for restructuring costs 474 2,451 2,925 Provisions for warranty costs 4,780 4,780 Other 3,047 2,874 5,921 Total 3,521 10,105 13,626

1997 Over Under Total one year one year Provisions for restructuring costs 533 2,819 3,352 Provisions for warranty costs 3,737 3,737 Other 2,331 2,974 5,305 Total 2,864 9,530 12,394

1996 Over Under Total one year one year Provisions for restructuring costs 171 3,720 3,891 Provisions for warranty costs 2,455 2,455 Other 1,722 1,996 3,718 Total 1,893 8,171 10,064 GbF Ch 4 - 56/87 Angl.exe 28/04/99 6:46 Page 72

72 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

24. BONDS Bond issues: AND OTHER BORROWINGS (In millions of French francs) 1998 1997 1996

A. Bond debt and other borrowings break down as follows: Renault S.A. : 1998 issue (In millions of French francs) 1998 1997 1996 at 3-month Pibor 500 Bonds 20,597 18,730 14,995 1996 issue at 5.80% 2,000 2,000 2,000 Other debt securities 5,870 6,039 5,411 1994 issue at 6.25% 2,000 2,000 2,000 Bank loans 3,862 3,190 2,861 1993 issue at 7.25% 1,500 1,500 1,500 Other financial debt 695 484 326 1993 issue at 7.5% 1,500 1,500 1,500 Portion 1992 issue at 9% 1,976 1,976 1,976 over one year 1986 issue at 10.625% 99 99 99 of long-term debt 31,024 28,443 23,593 1985 issue at 12.5% 1,922 Current portion of long-term debt 5,405 6,528 8,362 Total 9,575 9,075 10,997 Total long-term debt 36,429 34,971 31,955 Other bonds of industrial and commercial Short-term debt 63,780 63,970 74,081 subsidiaries 16 25 Total 100,209 98,941 106,036 Compagnie Financière Renault 1985 issue at 12% 1,000 Renault Crédit International : 1998 issue at 3-month Libor 1,006 1997 issue at 3-month Libor 1,006 1,004 1997 issue at 3-month Pibor 2,000 2,000 1997 issue at 6.30% 1,400 1,400 1996 issue at 6.60% 2,000 2,000 2,000 1995 single-coupon issue 1,285 1,180 1,077 1993 issue at 7.5% (April) 1,000 1,000 1,000 1993 issue at 7.5% (November) 1,000 1,000 1,000 1992 issue at 8.25% 1,011 Other bonds 325 324 327 Total 11,022 9,908 6,415 Diac 1989 issue at 8.70% 500 500 Total 500 500 Accrued interest 628 700 845 Total 21,225 20,199 19,782

(a) Before interest rate swap (see note 7). GbF Ch 4 - 56/87 Angl.exe 28/04/99 6:46 Page 73

B. Long-term borrowings mature as follows: F. CREDIT LINES (In millions of French francs) 1998 1997 1996 On December 31, 1998 the Renault Group's open credit lines Under one year 5,405 6,528 8,362 with banks amounted to the equivalent of FRF62,145 millions Between 1 and 2 years 8,517 5,142 5,942 in different currencies, with maturities extending to 2003 Between 2 and 3 years 3,911 6,648 1,200 (with the short-term portion amounting to FRF17,984 million). Between 3 and 4 years 3,147 4,650 2,762 This compares with FRF66,839 million and FRF17,957 million Between 4 and 5 years 3,982 1,489 2,802 on December 31, 1997, and FRF62,696 million and FRF16,285 Over 5 years 11,467 10,514 10,887 million on December 31, 1996. Total 36,429 34,971 31,955 A total of FRF13,116 million of these credit lines was in use on December 31, 1998, FRF16,701 million on December 31, 1997 Short-term drawings on credit lines with maturities of more and FRF17,217 million on December 31, 1996. than one year are recorded under long-term borrowings. The average commission paid in 1998 was 0.084% of confir- C. An analysis by currency of bonds and other borrowings, med credit lines, compared with 0.082% in 1997 and 0.086% before giving effect to derivative financial instruments, is as in 1996. follows: (In millions of French francs) 1998 1997 1996 French francs 58,983 52,174 57,934 25. OTHER LIABILITIES Other Other liabilities mainly include sundry taxes, staff remunera- euro zone currencies 22,350 25,268 25,176 tion and social charges on wages, in the following amounts: Other EU currencies (outside euro zone) 9,527 12,348 7,909 (In millions of French francs) 1998 1997 1996 Other currencies 9,349 9,151 15,017 Tax liabilities 8,075 5,981 3,136 Total 100,209 98,941 106,036 Payroll 7,014 6,269 5,642 Other 9,442 8,339 8,894 Total 24,531 20,589 17,672 D. Before giving effect to derivative financial instruments, long-term fixed-rate borrowings amounted to FRF25,465 The increase in tax liabilities is chiefly attributable to the rise million on December 31, 1998, FRF24,790 million on in taxes payable in 1998. December 31, 1997 and FRF27,485 million on December 31, 1996. The corresponding figures for floating-rate borrowings (usually based on LIBOR) were FRF10,964 million, FRF10,181 million and FRF4,470 million.

E. Average weighted interest rates on financial debt, before giving effect to derivative financial instruments, are broken down as follows: (In millions of French francs) 1998 1997 1996 Short-term debt 4.32% 4.78% 4.13% Current portion of long-term debt 3.82% 4.35% 8.24% Total financial debt due in less than one year 4.29% 4.74% 4.55% GbF Ch 4 - 56/87 Angl.exe 28/04/99 6:46 Page 74

74 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

26. NET FINANCIAL INDEBTEDNESS BY ACTIVITY

(In millions of French francs) Industrial Sales Balance and commercial financing sheet December 31, 1998 activities activities total Bonds 9,764 11,461 21,225 Other borrowings 20,328 58,656 78,984 Finance receivables (71,483) (71,483) Investment loans (39,112) (1,294) (40,406) Marketable securities (1,456) (533) (1,989) Cash and cash equivalents (4,970) (2,158) (7,128) Interactivity operations 2,796 (2,796) NET FINANCIAL INDEBTEDNESS (12,650) (8,147)

Industrial Sales Balance and commercial financing sheet December 31, 1997 activities activities total Bonds 9,345 10,854 20,199 Other borrowings 23,735 55,007 78,742 Finance receivables (64,009) (64,009) Investment loans (22,836) (3,533) (26,369) Marketable securities (1,342) (547) (1,889) Cash and cash equivalents (9,364) (1,028) (10,392) Interactivity operations 2,559 (2,559) NET FINANCIAL INDEBTEDNESS 2,097 (5,815)

Industrial Sales Balance and commercial financing sheet December 31, 1996 activities activities total Bonds 12,555 7,227 19,782 Other borrowings 36,583 49,671 86,254 Finance receivables (57,808) (57,808) Investment loans (33,599) (2,708) (36,307) Marketable securities (1,032) (159) (1,191) Cash and cash equivalents (5,408) (1,856) (7,264) Interactivity operations 286 (286) NET FINANCIAL INDEBTEDNESS 9,385 (5,919)

The net indebtedness of manufacturing and marketing activities includes the net financial debt of the industrial and commercial companies and the financial subsidiaries that manage the Group's cash funds. GbF Ch 4 - 56/87 Angl.exe 28/04/99 6:46 Page 75

27. FINANCIAL INSTRUMENTS

In its ordinary operations, the Renault Group is exposed to various financial risks, such as currency risk, interest rate risk and credit risk. The Group has devised on a central basis a set of specific policies for managing these exposures. When managing financial risk, the Group uses derivative financial instruments, but it never acts as market maker in such instruments. Since most transactions are intended to hedge positions taken in the course of normal business, the market risk of the instruments used is largely offset on the hedged positions by equal and opposite movements.

A. MANAGEMENT OF CURRENCY AND INTEREST RATE RISK

The corresponding commitments, expressed in terms of notional amount where appropriate, are broken down as follows: (In millions of French francs) 1998 1997 1996 FOREIGN EXCHANGE RISK: CURRENCY SWAP Purchases 3,027 5,650 5,505 Sales 3,017 5,631 5,542 Forward exchange contracts and options: Purchases 82,329 71,721 103,083 Sales 81,408 70,837 103,657 INTEREST RATE RISK: Interest rate swap 181,104 182,395 105,577 FRAs Purchases 9,168 31,663 21,450 Sales 7,857 35,640 34,817 OTHER INTEREST RATE HEDGING INSTRUMENTS Purchases 21,320 29,778 17,565 Sales 21,720 30,030 24,015

In addition, in the course of its ordinary business, Renault has entered into a number of financial contracts, including guarantees accompanying sales of receivables, financial guarantees and letters of credit, that may represent a potential risk. On December 31, 1998, neither the amounts involved nor the risks inherent in such contracts are considered to pose any significant risk. GbF Ch 4 - 56/87 Angl.exe 28/04/99 6:46 Page 76

76 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

B. COUNTERPARTY RISK

The Group controls the counterparty risk inherent in using financial instrument contracts by dealing solely with leading financial institutions and by establishing limits for each institution.

Renault has commercial relations with customers, dealers and partners throughout the world. Accordingly, its receivables and customer guarantees are highly diversified and, in many cases, collateralized by sureties or other pledges.

As a result, the Group considers that it is not exposed to any notable concentration of credit risk.

C. MARKET VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts on the balance sheet and the estimated market values of the Group's financial instruments are broken down as follows: (In millions of French francs) 1998 1997 1996 Book value Market value Book value Market value Book value Market value ASSETS

Other listed securities(a) 449 813 452 569 2,160 3,042 Other unlisted equity securities (b) 646 NA 752 NA 737 NA Other equity securities (I) 1,095 NA 1,204 NA 2,897 NA Securities included in other financial assets (II) 2 2 577 577 673 681 Trading securities 512 512 721 721 96 96 Other securities 1,477 1,781 1,168 1,193 1,095 1,165 Marketable securities (III) 1,989 2,293 1,889 1,914 1,191 1,261 Total investment portfolio (I+II+III) 3,086 NA 3,670 NA 4,761 NA Loans 40,406 40,492 26,369 26,423 36,306 36,418 Finance receivables 71,483 71,298 64,009 63,652 57,808 58,333 Cash and cash equivalents 7,128 10,392 7,264 7,264 LIABILITIES Bonds (21,225) (21,910) (20,199) (21,264) (19,782) (20,922) Other borrowings (78,984) (79,364) (78,742) (78,782) (86,254) (86,389) 21,894 NA 5,499 NA 103 NA

(a) The difference between market and book value can be analyzed as follows: - unrealized capital losses: FRF4 million for 1997 and FRF 83 million for 1996 - unrealized capital gains: FRF363 million for 1998, FRF121 million for 1997 and FRF1,044 million for 1996 (b) It has not been possible to determine the market value of equity stakes in some unlisted companies with which the group does business and for which comparisons with listed companies are unavailable GbF Ch 4 - 56/87 Angl.exe 28/04/99 6:46 Page 77

Estimated market value of off-balance sheet instruments: (In millions of French francs) 1998 1997 1996 Assets Liabilities Assets Liabilities Assets Liabilities Forward foreign exchange contracts 82,843 82,610 63,742 63,264 90,720 91,352 Currency swaps 3,085 3,143 5,687 5,686 4,854 5,444 Interest rate swaps 2,705 1,982 1,573 2,986 1,511 2,066 Interest rate futures 6 3 27 20 21 51

Assumptions and methods adopted: 31, 1996.

Estimated market values are based on information available on – Cash and cash equivalents the markets and arrived at using valuation methods appropriate The value recorded on the balance sheet is considered the to the types of instrument in question. However, the methods market value. and assumptions used are theoretical by nature, and judgement plays a major role in interpreting market data. Adopting diffe- – Bonds and other financial debt rent assumptions or pricing methods could therefore have a The market value of listed bonds has been estimated at year- significant impact on the values estimated. end market prices. As regards the Finance Division's debts Market values have been determined on the basis of informa- evidenced by securities issued with a life of less than 90 days, tion available at the end of the fiscal year and do not therefore the value recorded on the balance sheet is considered the take account of subsequent movements. market value. The market value of other financial debt was determined by discounting future cash flows at the rates offe- The main assumptions and valuation methods are as follows: red to Renault on December 31, 1998, December 31, 1997 and – Securities (marketable securities, redeemable securities December 31, 1996 for loans having similar conditions and and other securities) maturities.

The market value of securities is determined mainly by refe- – Off-balance sheet foreign exchange instruments rence to market prices. Redeemable securities and other The market value of forward contracts is estimated on the securities for which there is no traded price have been esti- basis of prevailing market conditions. The market value of mated by reference to the market price of similar securities, if currency swaps is determined by discounting cash flows using such exist. exchange rates and interest rates prevailing on December 31, – Investment loans 1998, December 31, 1997 and December 31, 1996 for the contracts' residual lives. For loans with an original maturity of less than three months and for floating-rate loans, the value recorded on the balance – Off-balance sheet interest rate instruments sheet is considered to be the market value. Other fixed-rate The market value of interest rate swaps represents the loans have been estimated by discounting future cash flows amount Renault would receive (or pay) if it settled outstan- using the rates offered to Renault on December 31, 1998, ding contracts at the end of the fiscal year. Unrealized capital December 31, 1997 and December 31, 1996 for loans having gains or losses, determined on the basis of prevailing interest similar conditions and maturities. rates and the quality of the counterparty to each contract, is – Sales-finance receivables taken into account on December 31, 1998, December 31, 1997 and December 31, 1996. Sales-finance receivables at fixed rates have been estimated by discounting future cash flows at rates that would be applicable to similar loans (conditions, maturity and debtor quality) as at December 31, 1998, December 31, 1997 and December GbF Ch 4 - 56/87 Angl.exe 28/04/99 6:46 Page 78

78 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

D. ANALYSIS OF SECURITIES PORTFOLIO (In millions of French francs) 1998 1997 1996 Book Market Book Market Book Market value value value value value value HELD-TO-MATURITY SECURITIES Debt securities issued by central or local authorities 550 550 529 537 Debt securities issued by Group companies 99 99 Other held-to-maturity debt securities 2 2 27 27 45 45 (I) 2 2 577 577 673 681 Trading securities (II) 512 512 721 721 96 96 OTHER SECURITIES Debt securities issued by central or local authorities 29 29 37 37 129 129 Debt securities issued by industrial and commercial companies Debt securities issued by Group companies 436 436 380 380 340 340 Other debt securities 706 740 552 578 625 696 Equities 304 576 650 767 2,160 3,042 (III) 1,475 1,781 1,619 1,762 3,524 4,207 Total for valued securities (I+II+III) 1,989 2,295 2,917 3,060 4,023 4,984 Securities for which the market value cannot be determined (IV) 646 752 737 Total 2,635 3,669 4,760 GbF Ch 4 - 56/87 Angl.exe 28/04/99 6:46 Page 79

Securities other than trading securities are analyzed by maturity:

(In millions of French francs) Held-to-maturity securities Other securities Book Market Book Market 1998 value value value value Under one year 1 1 714 747 Between one and five years 420 422 Between five and ten years 1 1 1 1 Over ten years 35 35 Shares 305 576 Total 2 2 1,475 1,781

Held-to-maturity securities Other securities Book Market Book Market 1997 value value value value Under one year 574 574 440 458 Between one and five years 1 1 528 536 Between five and ten years 11 Over ten years 2 2 Shares 650 767 Total 577 577 1,619 1,762

Held-to-maturity securities Other securities Book Market Book Market 1996 value value value value Under one year 22 22 806 864 Between one and five years 649 657 267 279 Between five and ten years 21 22 Over ten years 2 2 Shares 2,160 3,042 Total 673 681 3,254 4,207 GbF Ch 4 - 56/87 Angl.exe 28/04/99 6:46 Page 80

80 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

28. OTHER COMMITMENTS AND CONTINGENCIES A. THE GROUP IS COMMITTED FOR THE FOLLOWING AMOUNTS: (In millions of French francs) 1998 1997 1996 Customer guarantees and endorsements (sales financing) 72 29 23 Other guarantees granted 16,110 12,223 8,790 Pledged or mortgaged assets in favor of consolidated subsidiaries 68 133 110 Opening of confirmed credit lines for customers 2,472 1,429 423 Securities payable from repurchase or forward transactions 50 30 1,500

The "Other guarantees granted" item includes rent from irre- inter alia, to acquire the Technocentre at any time between vocable leases to which the Group is committed. These are 2000 and 2010 at market prices. The total cost of the real broken down as follows: estate investment is estimated at FRF5.2 billion. In June 1995, the Group sold the land and the building under construc- (In millions of French francs) 1998 1997 1996 tion to the real estate company at cost. Year following the end of the fiscal year 388 350 378 C. The Group is periodically subject to tax audits in France and Subsequent years 1,265 1,277 1,353 other countries in which it operates. Tax adjustments are taken to the financial statements. Contested tax adjustments are also On December 31, 1998 the Group was committed to firm taken into account for an amount equal to the estimated risk. investment orders of FRF6,421 million compared with FRF5,821 million on December 31, 1997 and FRF6,280 million D. In general, all litigation in which Renault or Group compa- on December 31, 1996. nies is involved is examined at year-end. After seeking the opinion of legal advisors, the provisions deemed necessary B. In 1994, Renault decided to combine its new-vehicle resear- are, where appropriate, set aside to cover the estimated risk. ch and development units in a single site, the Technocentre at Guyancourt . In March 1995, the Group signed an agreement within a group of investors under which the Technocentre would be built by a real estate company 15%-owned by Renault and 85% by the investors. This company leases the center to Renault at prevailing market rents under a lease expiring in 2010. The agreement gives Renault the option, GbF Ch 4 - 56/87 Angl.exe 28/04/99 6:46 Page 81

29. COMPANIES CONSOLIDATED ON DECEMBER 31, 1998 RENAULT GROUP’S INTEREST, % FULLY-CONSOLIDATED COMPANIES 1998 1997 1996 Cofiren Renault et Cie France 100 100 100

AUTOMOBILE DIVISION Société Immobilière Renault Habitation France 100 100 100 Renault Développement Industriel France 100 100 100 Société de Développement Immobilier France 100 100 100 Technologie et Exploitation Informatique France 100 100 100 Renault Group BV Netherlands 100 100 100 Renault Belgique International Belgium 100 100 100 GIE Technocentre France 100 100 100 Fabricación de Automobiles Renault de España Spain 92 92 91 Renault España Spain 100 100 100 Mecanización Contable S.A. Spain 92 92 91 Confranpor Portugal - - 50 Vehicle Engineering and Manufacturing Renault Industrie Belgique Belgium 100 100 100 Société de Transmissions Automatiques France 80 80 80 Fonderies du Poitou France 100 100 100 Société de Véhicules Automobiles de Batilly France 100 100 100 Maubeuge Construction Automobile France 100 100 100 Société de Magasinage et de Gestion des Stocks France 100 100 100 Renault Industrie Mexique Mexico - 100 100 Creos France 100 100 100 Société des Automobiles Alpine Renault France 100 100 100 Emboutissage Tôlerie Gennevilliers France 100 100 100 Creica France 100 100 100 SNC Renault Douai France 100 100 100 SNC Renault Flins France 100 100 100 SNC Renault Sandouville France 100 100 100 SNC Renault Cléon France 100 100 100 SNC Renault Le Mans France 100 100 100 GIE AT Systèmes France 96 96 - Industrial Companies Société Bretonne de Fonderie et de Mécanique France 100 100 100 Société Mécanique de Villeurbanne France 100 100 100 Métallurgique du Temple France 100 100 100 Fundição Portuguesa Portugal 82 82 82 Systems and Automation Renault Automation France 100 100 100 Agricultural Equipment Renault Agriculture France 100 100 100 Other companies Société Nouvelle de Roulements France 100 100 100 Société Nouvelle de Roulements Cévennes France 100 100 100 SNR Bearings U.K. Ltd Great Britain 100 100 100 SNR Wälzlager Germany 100 100 100 SNR Italia Italy 100 100 100 GbF Ch 4 - 56/87 Angl.exe 28/04/99 6:46 Page 82

82 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

RENAULT GROUP’S INTEREST, % 1998 1997 1996 SNR Bearings USA USA 100 100 100 SNR España Spain 100 100 100 SNR Maroc Morocco 100 100 100 Société de Recherches Commerciales et Industrielles France 100 100 100 Compagnie d’Affrètement et de Transport France 100 100 100 SGAN France 100 100 100 Compagnie d’Affrètement et de Transport Poland 100 100 100 Compagnie d’Affrètement et de Transport Spain 98 98 98 Compagnie d’Affrètement et de Transport Italy 100 100 100 Compagnie d’Affrètement et de Transport Germany 100 100 100 Other companies Compagnie d’Affrètement et de Transport Austria 100 100 100 COMATRAN France 100 100 100 Compagnie d’Affrètement et de Transport Belgium 100 100 100 Compagnie d’Affrètement et de Transport Portugal 100 100 100 CAT Voyages France 100 100 100 Compagnie d’Affrètement et de Transport Great Britain 100 100 100 Compagnie d’Affrètement et de Transport Switzerland 100 100 100 Compagnie d’Affrètement et de Transport Mexico 100 100 - Chausson Outillage France - - 100 CAT Distri Belgium 100 - - Compagnie d’Affrètement et de Transport Argentina 65 - - Compagnie d’Affrètement et de Transport Brazil 65 - - Sales – France Renault France Automobiles (RFA) France 100 100 - Pessac Automobiles France 100 100 100 Renault Paris Clichy France 100 100 100 Grands Garages de Catalogne France 100 100 100 Grands Garages Mulhousiens France 100 100 100 Grands Garages Douaisiens France 100 100 100 Société Nouvelle Garage du Nord France 100 100 100 Renault Limoges France - 100 100 Société Garage du Nord France 100 100 100 Renault Montbéliard France 100 100 100 Automobiles des Remparts France 100 100 100 Auto Services Brestois France 100 100 100 Nerva France 100 100 100 Avignon Stade Automobile France 100 100 100 Société Nouvelle des Grands Garages de Savoie France 99 100 100 Etablissements Louis Grisoni France 100 100 100 Société Immobilière pour le Commerce et la Réparation Automobile France 100 - - Sales – Europe Renault Italia Italy 100 100 100 Deutsche Renault Germany 100 100 100 Renault Belgique Luxembourg Belgium 100 100 100 Renault Nederland Netherlands 100 100 100 Renault U.K. Great Britain 100 100 100 Renault Österreich Automobilvertriebs Austria 100 100 100 GbF Ch 4 - 56/87 Angl.exe 28/04/99 6:46 Page 83

RENAULT GROUP’S INTEREST, % 1998 1997 1996 Renault Suisse Switzerland 100 100 100 Renault Portuguesa Portugal 98 98 93 Renault España Comercial S.A. and its subsidiaries Spain 92 92 91 Renault Retail Group Great Britain 100 100 100 Renault Hungaria Hungary 100 100 - Renault Ceska Républika Czech Republic 100 100 - Renault Polska Poland 100 100 - Renault Amsterdam Netherlands 100 - - Renault Berlin Germany 100 - - Renault Köln Germany 100 - - International Operations Oyak Renault Otomobil Fabrikalari Turkey 52 52 57 REVOZ Slovenia 54 54 54 Renault Comercial do Brasil Brazil - - 48 Renault do Brasil Automóveis Brazil - - 60 Mercosur Cofal Luxembourg 80 63 - Renault Comercial do Brasil (a) Brazil 50 31 - Renault do Brasil Automóveis (a) Brazil 48 38 - Renault Argentina (a) Argentina 47 32 - Capillitas S.A. Argentina 47 32 - Centro Automotores S.A. Argentina 47 32 - Cormasa S.A. Argentina 48 32 - Courtage S.A. Argentina 47 32 - Cormecánica Chile 48 34 - Metalúrgica Tandil S.A. Argentina 34 24 - Plan Rombo Argentina 46 32 - Rombo Ahorro Argentina 47 31 - Santander S.A. Argentina - 24 - After-sales Société de Distribution pour la Chimie, l’Automobile et la Mécanique France 100 100 100 French investment financing companies Société Immobilière d’Epone France 100 100 100 Société Immobilière de Construction Française pour l’Automobile et la Mécanique France 100 100 100

COMMERCIAL VEHICLES DIVISION Renault Véhicules Industriels France 100 100 100 Holding Companies Chardin Val d’Or France 100 100 100 Interautomobile Switzerland 100 100 100 Renault Truck Commercials Great Britain 100 100 100 Société d’Assistance Technique Automobile France 100 100 - Société Charolaise de Participations France 100 - - Industrial Research and Development Companies Société de Construction Mécanique de l’Arbresle France 100 100 100 GbF Ch 4 - 56/87 Angl.exe 28/04/99 6:46 Page 84

84 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

RENAULT GROUP’S INTEREST, % 1998 1997 1996 Other companies France Véhicules Industriels France 100 100 100 Renault Vehículos Industriales Spain 100 100 100 Renault V.I. Belgique Belgium 100 100 100 Renault LKW Germany 100 100 100 Renault Veicoli Industriali Italy 100 100 100 Renault Truck Industries Great Britain 100 100 100 Renault Veículos Comerciais Portugal 100 100 100 Société Internationale de Facturation Cayman Islands - - 100 Mack Trucks and its industrial, commercial and financial subsidiaries USA 100 100 100 Lofimat France - 100 100 Karosa Czech Republic 94 51 51 Renault V.I. Nubag Switzerland 100 100 100 Renault V.I. Lastbiler Denmark 100 100 100 Renault V.I. Lastkraftwagen Austria 100 100 100 Société de Transmissions Bouthéon France - 100 - Laudate France 100 100 - Heuliez Bus France 75 - - Renault Bus France 100 - - Renault Trucks Polska Poland 100 - -

FINANCIAL COMPANIES Sales Financing – France Renault Crédit International S.A. France 100 100 100 DIAC France 100 100 100 Compagnie de Gestion Rationelle France 100 100 100 Société de Gestion, d’Exploitation de Services en moyens administratifs France 100 100 100 Diac Location France 100 100 100 Renault V.I. Finance France 100 100 100 Sales Financing – outside France Renault Finanzholding (ex. Renault Bank GmbH) Germany 100 100 100 Renault Leasing Beteilungs Germany 100 100 100 RCI GmbH Austria 100 100 100 Renault Bank Austria 100 50 50 Renault Autofin S.A. (ex. Renault Crédit S.A.) Belgium 100 100 100 Overlease Belgium 100 100 100 Finalliance Belgium - 50 50 Renault Financiaciónes Spain 96 96 96 Renault Leasing de España Spain 96 96 96 Renault Financial Services Ltd. Great Britain 50 50 50 Overlease Netherlands 100 100 100 Renault Financiering Netherlands - - 100 Finrenault Italy 100 100 100 Refactor Italy 100 100 100 Sveviafin Italy 50 50 50 Renault Gest SCO Portugal 100 100 95 Renault Gest SGPS Portugal 100 100 95 Renault Gest SFAC Portugal 100 100 95 GbF Ch 4 - 56/87 Angl.exe 28/04/99 6:46 Page 85

RENAULT GROUP’S INTEREST, % 1998 1997 1996 Renault Gest Leasing Portugal 100 100 95 Renault Crédit S.A. Switzerland 100 100 100 Accordia Italy 100 - - Diac Belgique Belgium 100 - - Investment Financing Société Immobilière pour l’Automobile et la Mécanique France 100 100 100 Société de Financement des Moyens Informatiques France 100 100 100 Holding Companies and Other Credit Institutions Renault Holding Switzerland 100 100 100 Compagnie Financière Renault France 100 100 100 Société Financière et Foncière France 100 100 100 Renault Finance Switzerland 100 100 100 Renault Acceptance BV Netherlands 100 100 100 Renault Acceptance Ltd Great Britain 100 100 100 Renault Acceptance GmbH Germany 100 100 100 Service Companies Société Internationale de Gestion et de Maintenance Automobile France 100 100 100 Réalisation, Etudes, Courtage et Assurances France 100 100 100 Overlease España (ex. Renault Services Espagne) Spain 96 96 96 Difusora de Seguros S.A. Spain 96 96 96 Gest Seguros Portugal 100 100 96 Renault Conseil Assistance France - - 100 Renault Versicherungs Dienst Germany 100 100 100 Renault Services S.A. Belgium 100 100 100 GbF Ch 4 - 56/87 Angl.exe 28/04/99 6:46 Page 86

86 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

RENAULT GROUP’S INTEREST, % 1998 1997 1996 PROPORTIONATELY CONSOLIDATED COMPANIES AUTOMOBILE DIVISION Vehicle Engineering and Manufacturing Française de Mécanique France 50 50 50 Société Franco-Suédoise de Moteurs P.R.V. France 50 50 50 GIE TA 96 France 50 50 50 Industrial Companies Roulements Nadella France 50 50 50 Nadella Cuscinetti Italy 50 50 50 Nadella U.K. Great Britain 50 50 50 Nadella Wälzlager Germany 50 50 50 Nadella Belgique Belgium 50 50 50 Nadella Inde (NRB) India - 13 13 Nadella Industrie France 50 50 50 Nadella Suisse Switzerland 50 50 -

COMMERCIAL VEHICLES DIVISION Société Charolaise de Participations France - 50 50 Hansa Auto Oy Finland 50 50 - GbF Ch 4 - 56/87 Angl.exe 28/04/99 6:46 Page 87

RENAULT GROUP’S INTEREST, % 1998 1997 1996 COMPANIES ACCOUNTED FOR UNDER THE EQUITY METHOD AUTOMOBILE DIVISION International Operations Renault Maroc Morocco 50 50 50 Cofal Luxembourg - - 33 Sociedad de Fabricación de Automotores Colombia 24 24 24 Maïs Turkey 49 49 20 Industrial Companies Industria Cuscinetti (ICSA) Italy 33 33 33 Nadella Inde (NRB) India 13 - -

COMMERCIAL VEHICLES DIVISION Heuliez Bus France - 37 37 Subsidiaries of France Véhicules Industriels France 100 100 100 Renault V.I. Liège Belgium 100 100 100 Renault Truck Ireland Ireland 100 100 100 Macasa Spain 100 100 100 Iruvisa Spain 100 100 100 Barnavisa Spain 100 100 100 Sevisa Spain 100 100 100 Muvisa Spain 100 100 100 Laudate France 48 - 100 Société de Transmissions Bouthéon France 40 - -

FINANCE DIVISION Société de Développement des Echanges Switzerland 33 33 33 Sodéchanges France France - 33 33 Sofrafi France 40 40 40 Solocvi France 40 40 40 Diamond Lease Belgium 45 45 45 Diamond Finance U.K. Great Britain 40 40 40 Fineritalia Italy 40 40 40 Gb Ch 4 -36/43 Angl. Eur.exe 28/04/99 7:48 Page 36

IV. Consolidated Financial Statements

36 AUDITORS’ REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 1998

These consolidated financial statements have been approved by the Board of Directors. Our role is to express an opinion on these financial statements based on our audit.

We have also verified the Group financial information provided in the Group management report.

We have no comments to make as to the fair presentation of this information nor its consistency with the consolidated financial statements.

Paris, March 16, 1999

The Auditors

DELOITTE TOUCHE TOHMATSU ERNST & YOUNG, Audit

Olivier AZIERES Dominique THOUVENIN Gb Ch 4 -36/43 Angl. Eur.exe 28/04/99 7:48 Page 37

CONSOLIDATED INCOME STATEMENTS 37

(In millions of euros) 1998 1997 1996

Sales of goods and services 35,993 30,495 26,835

Sales financing revenues (note 4) 1,194 1,201 1,228

Revenues (note 3) 37,187 31,696 28,063

Cost of goods and services sold (28,518) (24,887) (22,381)

Cost of sales financing (note 4) (761) (687) (719)

Research and development expenses (1,553) (1,378) (1,391)

Selling, general and administrative expenses (4,435) (4,181) (3,812)

Operating margin (note 1-H) 1,920 563 (240)

Other operating income and expenses (note 5) (268) (254) (673)

Operating income (loss) 1,652 309 (913)

Net interest income 52 44 10

Other income and expenses, net 8 264 39

Financial income (note 7) 60 308 49

Share in net income of companies accounted

for under the equity method (note 11) (13) 7 3

Group pre-tax income (loss) 1,699 624 (861)

Current and deferred tax (note 8) (362) 205 58

Group net income (loss) 1,337 829 (803)

Minority interests 12 (2) 3

Renault net income (loss) 1,349 827 (800)

Earnings per share in French francs (note 1-K) 5.64 3.47 (3.36)

Number of shares outstanding (in thousands) 239,261 238,151 237,750

The Group introduced the notion of operating margin in 1998. Data for 1996 and 1997 have been restated on a proforma basis. Gb Ch 4 -36/43 Angl. Eur.exe 28/04/99 7:48 Page 38

CONSOLIDATED BALANCE SHEETS ON DECEMBER 31

(In millions of euros) 1998 1997 1996 38 ASSETS Intangible assets 85 91 54 Property, plant and equipment (note 9) 8,800 8,961 8,401 Assets under operating lease (note 10) 250 274 274 Investments in companies accounted for under the equity method (note 11) 117 109 115 Other investments (note 12) 167 184 442 Other financial assets 310 346 328 Finance receivables (note 13) 10,898 9,758 8,813 Deferred tax assets (note 8)(a) 1,255 952 617 Inventories (note 14) 4,022 3,713 3,303 Accounts and notes receivable (note 15) 2,901 2,649 2,426 Other receivables and pre-paid expenses (note 16) 1,770 2,153 1,582 Loans (note 17) 6,160 4,020 5,535 Marketable securities (note 18) 303 288 182 Cash and cash equivalents (note 1-P) 1,087 1,584 1,107 Total assets 38,125 35,082 33,179

SHAREHOLDERS' EQUITY AND LIABILITIES Share capital 914 914 914 Share premium account 2,367 2,367 2,367 Retained earnings 3,551 2,840 3,610 Translation adjustments (320) (253) (333) Net income 1,349 827 (800) Shareholders' equity (note 19) 7,861 6,695 5,758 Minority interests (note 20) 662 679 309 Redeemable shares (note 21) 353 353 353 Deferred tax liabilities (note 8)(a) 196 217 216 Provisions for pensions and other post-retirement benefits (note 22) 1,082 1,069 971 Other provisions for risks and liabilities (note 23) 2,077 1,889 1,534 Bonds (note 24) 3,236 3,079 3,016 Other borrowings (note 24) 12,041 12,004 13,149 Accounts and notes payable 6,306 5,474 4,556 Other liabilities (note 25) 3,740 3,139 2,694 Deferred income 571 484 623 Total shareholders' equity and liabilities 38,125 35,082 33,179

(a) From 1998, deferred tax assets and liabilities are offset by tax grouping in balance sheet presentation. Data for 1996 and 1997 have been restated accordingly (note 8). Gb Ch 4 -36/43 Angl. Eur.exe 28/04/99 7:48 Page 39

CHANGE IN CONSOLIDATED SHAREHOLDERS' EQUITY 39

(In millions of euros) Number of shares Share capital Share premium Foreign currency Retained earnings Total (in thousands) account translation adjustment Balance on December 31, 1995, before allocation 237,355 911 2,354 (325) 3,737 6,677 Capital increase (note 19-A) 790 3 13 16 Dividend (127) (127) Change in translation adjustment and other (8) (8) Income for the 1996 fiscal year (800) (800)

Balance on December 31, 1996, before allocation 238,145 914 2,367 (333) 2,810 5,758 Treasury stocks 1,000 14 14 Dividend Change in translation adjustment and other 80 16 96 Income for the 1997 fiscal year 827 827

Balance on December 31, 1997, before allocation 239,145 914 2,367 (253) 3,667 6,695 Treasury stocks 653 61 61 Dividend (127) (127) Change in translation adjustment and other (67) 2 (65) Income for the 1998 fiscal year 1,349 1,349

Balance on December 31, 1998, before allocation 239,798 914 2,367 (320) 4,900 7,861

On December 31, 1998, unrealized foreign exchange gains and losses relating to euro zone currencies included in consolidated shareholders' equity amounted to (349) million euros. Gb Ch 4 -36/43 Angl. Eur.exe 28/04/99 7:48 Page 40

40 STATEMENTS OF CASH FLOWS

(In millions of euros) 1998 1997 1996 OPERATING ACTIVITIES Net income 1,349 827 (800) Depreciation and amortization 1,803 1,677 1,620 Net effects of sales financing credit losses 104 88 87 (Profits)/losses on asset disposal (11) (307) 50 Appropriation of long-term net valuation provisions 164 134 258 Share in net income of companies accounted for under the equity method (net of dividends received) 16 (6) 13 Deferred taxes (315) (311) (170) Minority interests (12) 2 (3) Cash flow 3,098 2,104 1,055 Increase in inventories (377) (64) (13) Decrease (increase) in accounts and notes receivable (305) (52) 50 Decrease (increase) in other receivables and accrued expenses 366 (386) (177) Increase (decrease) in trade accounts and notes payable 860 592 (6) Increase in other payables and deferred income 905 511 576 Decrease in working capital requirement 1,449 601 430 Retail financing (6,242) (5,745) (4,812) Customer repayment 5,336 4,980 4,398 Change in renewable net dealer financing (394) (165) 213 Increase in receivables from sales financing (1,300) (930) (201) Cash flows from operating activities 3,247 1,775 1,284 Gb Ch 4 -36/43 Angl. Eur.exe 28/04/99 7:48 Page 41

(In millions of euros) 1998 1997 1996 INVESTING ACTIVITIES Acquisitions of investments, net of cash acquired (67) (124) (100) Capital expenditure for property, plant equipment and intangibles (2,205) (2,359) (2,499) Disposal of investments, net of cash disbursed 63 687 22 Proceeds from sales of property, plant and equipment and intangible assets 397 394 351 Net investment (1,812) (1,402) (2,226) Net (increase) decrease in other financial assets(a) 47 (15) 23 Receivables on AB Volvo relative to the disposal of VTC 172 CASH FLOWS FROM INVESTING ACTIVITIES(a) (1,765) (1,417) (2,031)

FINANCING ACTIVITIES Bond issuance 246 686 622 Bond redemption (79) (600) (214) Net increase (decrease) in other borrowings 359 (1,748) (123) Net (increase) decrease in marketable securities(a) (7) (93) 51 Net (increase) decrease in loans(a) (2,312) 1,792 85 Proceeds from minority interests 28 74 26 Dividends paid to parent company shareholders (127) (112) Dividends paid to minority interests (32) (19) (11) Other (11) CASH FLOW FROM FINANCING ACTIVITIES(a) (1,924) 92 313

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (note 1-O) (442) 450 (434) Balance at the beginning of the year 1,584 1,107 1,614 Increase (decrease) (442) 450 (434) Effects of exchange rates on cash and cash equivalents (55) 27 (73) Balance at the end of the year 1,087 1,584 1,107

42 INFORMATION BY DIVISION

(In millions of euros) Renault S.A. Automobile Commercial Vehicles Finance Consolidated Head Office Division Division Division 1998 fiscal year Revenues 30,274 6,237 1,444 Inter-division eliminations(b) (535) (45) (188) Contribution to consolidated revenues 29,739 6,192 1,256 37,187 Contribution to consolidated operating margin 1,545 171 204 1,920 Contribution to consolidated operating income 1,282 136 234 1,652 Contribution to consolidated pre-tax income(a) 1,307 90 302 1,699 Total assets 767 15,851 3,036 18,471 38,125 Investments in securities 41 14 12 67 Investments in property, plant, equipment and intangibles 1,885 151 169 2,205 Depreciation and amortization 1,563 148 92 1,803 Research and development expenses 1,408 145 1,553 Workforce 109,409 25,635 3,277 138,321

1997 fiscal year Revenues 25,773 5,279 1,313 Inter-division eliminations(b) (499) (68) (102) Contribution to consolidated revenues 25,274 5,211 1,211 31,696 Contribution to consolidated operating margin 364 (8) 207 563 Contribution to consolidated operating income 137 (29) 201 309 Contribution to adjusted consolidated pre-tax income(a) 300 (24) 348 624 Contribution to published consolidated pre-tax income 361 (70) 333 624 Total assets 678 15,541 2,948 15,915 35,082 Investments in securities (4) 121 6 1 124 Investments in property, plant, equipment and intangibles 1,963 163 233 2,359 Depreciation and amortization 1,432 149 96 1,677 Research and development expenses 1,237 141 1,378 Workforce 112,178 25,860 3,277 141,315

1996 fiscal year (a) The activity of the Renault Revenues 22,716 4,650 1,324 and Cofiren Head Offices is Inter-division eliminations(b) (464) (75) (88) allocated to other divisions according to convention. Contribution to consolidated revenues 22,252 4,575 1,236 28,063 Data for 1996 and 1997 have been restated to take Contribution to consolidated operating margin (342) (93) 195 (240) account of the new alloca- Contribution to consolidated operating income (998) (107) 192 (913) tion agreement implemented during 2nd-half 1998, Contribution to adjusted consolidated pre-tax income(a) (983) (141) 263 (861) backdated to January 1, 1998. Contribution to published consolidated pre-tax income (940) (173) 252 (861) Head Office income, which in Total assets 695 13,554 2,778 16,152 33,179 1997 included a capital gain on the sale of AB VOLVO Investments in securities (8) 80 16 12 100 shares for 188 million euros, Investments in property, plant, equipment and intangibles 2,066 215 218 2,499 has likewise been divided between the divisions Depreciation and amortization 1,384 134 102 1,620 according to convention. (b) Interdivision transactions Research and development expenses 1,210 181 1,391 are carried out under near- Workforce 111,523 26,049 3,333 140,905 market conditions. Gb Ch 4 -36/43 Angl. Eur.exe 28/04/99 7:48 Page 43

INFORMATION BY GEOGRAPHIC AREA(a) 43

(In millions of euros) France Other EU Other European Other Consolidated countries countries countries 1998 fiscal year Revenues 32,958 18,731 2,023 4,592 Inter-area eliminations (15,651) (4,387) (892) (187) Contribution to consolidated revenues 17,307 14,344 1,131 4,405 37,187 Contribution to consolidated operating margin(b) 1,364 411 53 92 1,920 Contribution to consolidated operating income 1,151 405 41 55 1,652 Contribution to consolidated pre-tax income 1,293 398 53 (45) 1,699 Total assets 17,936 11,152 6,505 2,532 38,125 Investments in securities 54 1 2 10 67 Investments in property, plant, equipment and intangibles 1,451 261 39 454 2,205 Depreciation and amortization 1,410 222 31 140 1,803 Workforce 92,854 24,087 5,378 16,002 138,321

1997 fiscal year Revenues 27,719 15,685 1,607 3,552 Inter-area eliminations (12,514) (3,589) (662) (102) Contribution to consolidated revenues 15,205 12,096 945 3,450 31,696 Contribution to consolidated operating margin(b) 184 273 22 84 563 Contribution to consolidated operating income 37 167 21 84 309 Contribution to consolidated pre-tax income 294 170 47 113 624 Total assets 18,503 9,755 4,463 2,191 35,082 Investments in securities 121 2 1 124 Investments in property, plant, equipment and intangibles 1,753 332 60 214 2,359 Depreciation and amortization 1,336 211 25 105 1,677 Workforce 95,455 25,220 4,827 15,813 141,315

1996 fiscal year Revenues 25,290 13,680 1,164 2,226 Inter-area eliminations (9,644) (3,964) (596) (93) Contribution to consolidated revenues 15,646 9,716 568 2,133 28,063 Contribution to consolidated operating margin(b) (798) 505 15 38 (240) (a) The geographic break- Contribution to consolidated operating income (963) (2) 15 37 (913) down is based on the areas in which Group com- Contribution to consolidated pre-tax income (951) (10) 44 56 (861) panies are located. The Total assets 18,203 8,479 5,624 873 33,179 breakdown of revenues by sales and marketing area Investments in securities 99 1 100 is given in note 3. Investments in property, plant, equipment and intangibles 2,077 296 32 94 2,499 (b) The Group introduced the notion of operating margin Depreciation and amortization 1,310 232 26 52 1,620 in 1998. Date for 1996 and 1997 have been restated on Workforce 99,524 27,299 4,599 9,483 140,905 a proforma basis. Gb Ch 4 - 44/76-Angl. Eur.exe 28/04/99 7:57 Page 44

44 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

a) Sales of goods and services B. TRANSLATION OF THE FINANCIAL STATEMENTS OF FOREIGN SUBSIDIARIES Sales and margin recognition

E. RESEARCH AND DEVELOPMENT The concept of "operating margin" was introduced into the EXPENSES Group accounts in 1998. Operating margin corresponds to operating income before the following: Research and development expenses are defined as resear- – costs and provisions for restructuring, ch, development and production costs relating to new pro- – gains and losses on the disposal of property, plant and ducts. They are recorded in the costs for the fiscal year in equipment and intangible assets (excluding sales of vehicles), which they are incurred. – income and expenses arising from transactions on investment (disposals, amortization of goodwills in particular), – unusual items corresponding to income and expenses that are unusual in their frequency, nature or amount. Gb Ch 4 - 44/76-Angl. Eur.exe 28/04/99 7:57 Page 46

46 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Debt securities include only fixed income securities acquired R. BORROWING with the intention of being held on a long-term basis, usually until maturity. These securities are either hedged by interest Loan costs including issuance costs rate futures to protect them from interest rate exposure in the Loan costs, including issuance costs, and bond redemption long term, or supported by long-term financing enabling them to premiums are amortized over the corresponding loan period. be held until maturity. Renegotiations of loans Discounts and premiums are amortized on a straight-line basis over the remaining life of the security. Provisions for loss are Expenses arising from the renegotiations of loans or similar established when there is a likelihood of the issuer defaulting. operations intended to bring interest payments to a level close to market rates are recorded as financial expenses in the Marketable securities accounts for the year the negotiation was conducted. Marketable securities are valued at the cost of acquisition excluding accessory purchasing costs and, for bonds, interest S. FINANCIAL INSTRUMENTS already carried, or at their market value if this is lower. To manage its exchange rate risk, the Group uses forward foreign exchange contracts, currency swaps and, to a lesser N. TREASURY STOCK extent, options. Forward contracts are recognized as hedges Shares in the common stock of the parent company held on a insofar as they are designated as such. These hedges may long-term basis by consolidated companies are taken to redu- cover the net investment of the Group in certain foreign subsi- ce consolidated shareholders' equity at their purchase price. diaries, receivables or debts denominated in foreign currencies, or firm foreign currency commitments. These instru- Profit or loss on the sale of these shares is recorded directly ments generally mature within two years. The contracts are in consolidated retained earnings. treated as off-balance-sheet financial instruments, with related gains and losses recorded in the settlement of the underlying O. INVENTORIES transactions. In the event of early termination of a hedging Inventories are stated at the lower of cost or net realizable contract, the gain or loss continues to be deferred and is inclu- value. Cost corresponds to acquisition or production cost. ded in the settlement of the underlying transaction. Gains and Production cost includes direct and indirect production losses on instruments that hedge net investments in foreign expenses and a share of fixed costs associated with manufac- subsidiaries are recognized as an adjustment directly in share- turing, based on a normal level of activity. Cost is generally holders’ equity. Gb Ch 4 - 44/76-Angl. Eur.exe 28/04/99 7:57 Page 48

48 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The Group's general policy with respect to interest rate risk Except as regards revenues, changes in the scope of consoli- is not to specifically hedge transactions, but to manage dation have no significant effect on the Group's accounts. interest rate exposure on a comprehensive basis using inter- Consolidated revenues for 1998 take into account: est rate swaps, forward interest rate contracts and currency swaps. – 66 million euros corresponding to the effects of full consolidation of Heuliez Bus from January 1, 1998 (the company was Interest rate swaps are treated as off-balance-sheet financial previously accounted for by the equity method). instruments and the resulting interest differentials are recorded as an adjustment to interest expense. In the event of ear- – 46 million euros corresponding to the effects of first-time ly termination of a rate swap, gains and losses are deferred consolidation of Renault Trucks Polska. and modify the interest cost over the remaining term of the Consolidated revenues for 1997 take into account: underlying debt. The underlying capital gains or losses on forward interest- – 400 million euros corresponding to the effect of full conso- rate contracts that are designated as hedges are used to lidation of the Renault Argentina group from June 30, 1997; adjust the interest expense for the duration of the underlying until then the group was accounted for by the equity method debt. For other contracts, only the underlying losses are via the Coal holding company. recognized in the results. – 122 million euros corresponding to the effect of first-time The Group also uses commodity futures to hedge its pur- consolidation of the sales subsidiaries in Central Europe chases. Insofar as the Group is able either to settle certain (Renault Polska, Renault Ceska and Renault Hongaria). transactions by a payment, or to take physical delivery of the Consolidated revenues for 1996 take into account: underlying commodities, these contracts are not treated as financial instruments. – for the Automobile Division, the first-time consolidation of the French sales subsidiaries (164 million euros) and of 2. CHANGE IN THE SCOPE Renault Retail Group (155 million euros), and the entry of OF CONSOLIDATION Renault Comercial do Brazil (73 million euros); – for the Commercial Vehicles Division, the entry of Carouse The scope of consolidation can be broken down as follows: (78 million euros). Number of subsidiaries 1998 1997 1996 Fully consolidated 184 181 168 Change in the scope of consolidation after the year-end Proportionately integrated 11 12 9 Renault V.I. signed an agreement with Iveco regarding a joint Equity method 36 37 47 venture to handle the coach and bus activities (i.e. design, 231 230 224 production and marketing) of both groups. This agreement resulted in the formation of IRIS.BUS on January 1, 1999. Renault V.I. owns 50 % of the joint venture.

Renault has signed an agreement with Fiat to merge all the foundry operations of the two groups. When this operation is complete, Renault will hold 33.5 % of the new entity. Gb Ch 4 - 44/76-Angl. Eur.exe 28/04/99 7:57 Page 49

3. REVENUES

In terms of revenues, the relationship between the country in which companies are located and their marketing areas breaks down as follows (figures in millions of euros): Company location 1998 France European Other European Other Total Union countries countries Sales and marketing area France 14,310 41 3 14,354 European Union 1,208 14,286 1 1 15,496 Other European countries 246 16 1,130 1 1,393 Other countries 1,543 1 4,400 5,944 Total 17,307 14,344 1,131 4,405 37,187

Company location 1997 France European Other European Other Total Union countries countries Sales and marketing area France 12,455 22 3 17 12,497 European Union 982 12,023 1 13,006 Other European countries 225 37 914 1,176 Other countries 1,543 14 28 3,432 5,017 Total 15,205 12,096 945 3,450 31,696

Company location 1996 France European Other European Other Total Union countries countries Sales and marketing area France 12,898 18 8 1 12,925 European Union 870 9,576 1 10,447 Other European countries 404 115 533 3 1,055 Other countries 1,474 7 27 2,128 3,636 Total 15,646 9,716 568 2,133 28,063 Gb Ch 4 - 44/76-Angl. Eur.exe 28/04/99 7:57 Page 50

50 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

4. SALES FINANCING Restructuring costs and provisions are mainly to allow for Revenues measures to reorganize certain operations and to adjust (In millions of euros) 1998 1997 1996 workforce levels.

Retail and dealer financing 661 665 660 In 1998 this item was chiefly composed of manpower plans Leasing, rentals for foreign companies (90 million euros) and French compa- and similar operations 533 536 568 nies (60 million euros) as well as the net effect of the conti- Total 1,194 1,201 1,228 nued implementation of other restructuring measures by the Automobile Division.

Costs In 1998 Renault S.A. made no new provisions for manpower (In millions of euros) 1998 1997 1996 plans. Net credit losses (61) (40) (50) In 1997 this item was mainly composed of Renault S.A.'s Other sales financing costs (700) (647) (669) manpower plan (65 million euros) and the net effect of the Total (761) (687) (719) continued implementation of other restructuring measures by the Automobile Division.

In 1996 they primarily entailed the cost of stopping the acti- 5. OTHER OPERATING INCOME vity of the Renault Industrie Belgique (RIB) Vilvoorde factory AND EXPENSES, NET (369 million euros) and costs involved in Renault S.A.'s man- (In millions of euros) 1998 1997 1996 power plan (121 million euros). Restructuring costs and provisions (244) (235) (595) 6. PERSONNEL COSTS Gains and losses on disposals (In millions of euros) 1998 1997 1996 of tangible and intangible Automobile Division 4,403 4,339 4,153 long-term assets (excepting sales Commercial Vehicles Division 1,119 1,057 1,005 of vehicles) (62) (49) (77) Finance Division 183 185 178 Gains and losses Total 5,705 5,581 5,336 on transactions in investments in operating activities 22 51 3 The total level of remuneration for Renault Group Directors (members of the Group's Executive Committee) was 3.1 mil- Items of an unusual nature or abnormally lion euros in 1998. high amount 16 (21) (4) Remuneration of members of the Board of Directors totaled Total (268) (254) (673) 0.3 million euros in 1998 and 0.3 million euros in 1997.

7. FINANCIAL INCOME Following the introduction of the "operating margin" concept, foreign exchange differences on trading operations Net interest income (expense) can be broken down as follows: as well as proceeds from sales of vehicles, which were pre- (In millions of euros) 1998 1997 1996 viously carried as "Other operating income and expenses", Interest expense (315) (405) (443) are now recorded as "Costs of goods and services sold". The Interest income 364 440 443 figures for 1996 and 1997 have been adjusted accordingly. Gain on marketable securities 3 9 10 Total 52 44 10 Gb Ch 4 - 44/76-Angl. Eur.exe 28/04/99 7:57 Page 51

In 1998 financial costs amounted to 38 million euros, the A. The current taxes of Group companies are taxes payable cost of the interest rate swap intended to bring the rate of to the tax authorities for the fiscal year. This amount is interest on the 1992 bond issue into line with market rates. determined according to the tax legislation and rate in effect in the various countries. Other financial income and expense includes: (In millions of euros) 1998 1997 1996 B. The valuation allowance for deferred tax assets is determined taking into account the probability of recovery of defer- Income from participations red tax assets over time, and the characteristics of the in non-Group companies 7 262 38 worldwide "consolidated profits" reporting system. In view of Other financial the Group's earnings prospects, the valuation made in pre- income and expenditure 1 2 1 vious years has been revised. Only the proportion of these Total 8 264 39 allowances relating to minority interests in subsidiaries not taken into account in the worldwide "consolidated profits" In 1997, income from non-Group investments included 64 mil- regime has been left unchanged. lion euros in capital gains from the sale of Elf Aquitaine shares The table below shows the reconciliation between the French by the Finance Division and 188 million euros in capital gains corporate tax rate on income and the Group's effective tax rate: from the sale of AB Volvo shares by Renault S.A. head office. 1998 1997 1996 French corporate 8. CURRENT AND DEFERRED TAXES income tax rate 36.6% 36.6% 36.6% Items eligible By applying the worldwide "consolidated profits" tax regime, for reduced rate of taxation (2.1%) (15.2%) 3.1% which was extended on January 1, 1998 for a period of three Appropriation/reversal years, Renault bases its taxes on the taxable earnings of most of valuation allowances of its subsidiaries and companies in which it has holdings, for deferred tax assets (17.4%) (36.7%) (33.0%) French and foreign, calculated under this regime. Against the Other items 4.2% (17.5%) tax liability corresponding to this taxable earnings figure, the EFFECTIVE TAX RATE 21.3% (32.8%) 6.7% tax paid by these companies can, within certain limits, be offset.

Moreover, Renault has elected to determine French income The breakdown of the effective tax rate is made by reference taxes on a consolidated basis, including French subsidiaries held to the French corporate tax rate, currently 36.6%, although at 95% or more. the rate under the worldwide "consolidated profits" regime is 33.3%. The French corporate tax rate is subject to temporary It is on this basis that the Group's current and deferred taxes surcharges, bringing it to 41.6% for 1998 and 40% for 1999. were determined as follows: Such surcharges apply only to the Group entities liable for (In millions of euros) 1998 1997 1996 tax in France. The resulting revisions to deferred taxes are Income taxes not significant. This temporary surcharge has increased the currently payable (677) (147) (163) income tax currently payable by 33 million euros in 1998. Deferred tax credits 20 123 505 Change in provisions The capital gains on disposals in 1997 resulted from one-off for loss of value disposals of equity holdings. on deferred taxes and assets 295 229 (284) Net deferred tax credits 315 352 221 Current and deferred taxes (362) 205 58 Gb Ch 4 - 44/76-Angl. Eur.exe 28/04/99 7:57 Page 52

52 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

On the balance sheet, deferred taxes are broken down as fol- 9. PROPERTY, PLANT lows: AND EQUIPMENT (In millions of euros) 1998 1997 1996 (In millions of euros) 1998 1997 1996 Land 331 327 307 Fixed assets (505) (493) (542) Buildings 3,984 3,955 3,608 Provisions and other accrued expenses Special tools 4,661 4,748 4,221 deductible only on payment 944 895 926 Machinery and equipment 9,319 9,365 8,368 Inter-company eliminations 645 679 558 Other tangibles 1,727 1,746 1,602 Valuation allowance (25) (346) (541) Construction in progress 913 847 1,137 Net deferred tax assets Gross value 20,935 20,988 19,243 (liabilities) 1,059 735 401 Land and buildings (1,976) (1,875) (1,672) Special tools (3,234) (3,227) (3,086) Machinery and equipment (5,790) (5,772) (5,077) The revised IAS 12 standard relating to corporate income tax Other tangible assets (1,135) (1,153) (1,007) has been applied for the first time in 1998. This standard Depreciation and amortization (12,135) (12,027) (10,842) states that deferred tax assets and liabilities must be offset in the presentation of the balance sheet by tax grouping. This Net value 8,800 8,961 8,401 standard has been applied retroactively to the financial state- Changes in property plant and equipment for the fiscal year ments for 1996 and 1997 in the amount of 482 million euros were as follows: and 463 million euros respectively. (In millions of euros) Gross Depreciation Net Moreover, on December 31, 1998 the Group has a capital loss value value carryover of 606 million euros on capital gains taxable at the Value on December 31, 1995 18,035 (10,003) 8,032 reduced rate. These capital losses may be set against lower- Acquisitions/(depreciation) 2,312 (1,720) 592 rate taxable earnings up to and including 2002. (Disposals)/reversals (1,213) 922 (291)

The total difference between the share of shareholders' equity Translation adjustment 37 (6) 31 in Group companies and the tax value of equity holdings at Change in scope of consolidation 72 (35) 37 December 31, 1998 is 1,735 million euros. No deferred tax has Value on December 31, 1996 19,243 (10,842) 8,401 been recorded in respect of this difference since the situation Acquisitions/(depreciation) 2,066 (1,555) 511 is not expected to be reversed through disposals in the fore- (Disposals)/reversals (1,203) 897 (306) seeable future. Translation adjustment 178 (84) 94 Change in scope of consolidation 704 (443) 261 Value on December 31, 1997 20,988 (12,027) 8,961 Acquisitions/(depreciation) 1,975 (1,711) 264 (Disposals)/reversals (1,712) 1,398 (314) Translation adjustment (129) 58 (71) Change in scope of consolidation (187) 147 (40) Value on December 31, 1998 20,935 (12,135) 8,800

Owing to the reduced levels of debt in industrial and commercial activities (note 26), the Group has not capitalized interim interest during the 1998 fiscal year.

Interim interest capitalized during the 1997 fiscal year amounted to 46 million euros and 30 million euros in 1996. Gb Ch 4 - 44/76-Angl. Eur.exe 28/04/99 7:57 Page 53

The "change in scope of consolidation" entry includes: 11. INVESTMENT IN COMPANIES AT EQUITY – in 1998, (37) million euros as a result of the change from (In millions of euros) 1998 1997 1996 full consolidation to equity-method accounting following the partial disposal of Société de Transmissions de Bouthéon, Maïs 57 60 14 representing a gross amount of (94) million euros and 57 mil- Sofasa 3 10 9 lion euros in amortization, Cofal Group 61 Société de Transmissions – in 1997, 241 million euros as a result of the full consolidation de Bouthéon 14 of the Renault Argentina Group on June 30, 1997, represen- Other 43 39 31 ting a gross amount of 686 million euros and 445 millions in Total 117 109 115 amortization.

In the course of 1998 Renault Véhicules Industriels sold 60% 10. ASSETS UNDER OPERATING of Société de Transmissions de Bouthéon. This company, for- LEASE merly fully consolidated, is now accounted for by the equity method. Assets under operating lease correspond to vehicles under long- term leases due to be sold at the end of the leasing period. Changes In the course of 1997, Renault acquired an additional 29% in this item were as follows: stake in Maïs, taking its holding from 20% to 49%. (In millions of euros) Gross Depreciation Net Cofal has been fully consolidated since June 30, 1997. value value

Value on December 31, 1995 459 (171) 288 Changes in this item were as follows: Acquisitions/(depreciation) 177 (87) 90 (In millions of euros) 1998 1997 1996 (Disposals)/reversals (198) 94 (104) Balance on January 1 109 115 136 Value on December 31, 1996 438 (164) 274 Change in scope of consolidation 14 (55) (16) Acquisitions/(depreciation) 182 (83) 99 Change in translation adjustment and other changes (2) 38 2 (Disposals)/reversals (190) 91 (99) Dividend distribution (3) (2) (15) Value on December 31, 1997 430 (156) 274 Increase in capital 12 2 2 Acquisitions/(depreciation) 154 (78) 76 Income (13) 11 6 (Disposals)/reversals (190) 90 (100) Balance on December 31 117 109 115 Value on December 31, 1998 394 (144) 250 Gb Ch 4 - 44/76-Angl. Eur.exe 28/04/99 7:57 Page 54

54 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The figures for all companies accounted for by the equity method were as follows: Automobile Division Commercial Vehicles Division (In millions of euros) 1998 1997 1996 1998 1997 1996 Sales 1,072 1,132 1,643 253 221 267 Net income (41) 5 17 2 (3) 0 Shareholders' equity 159 201 318 62 20 21 Balance sheet total 574 507 543 68 109 125

12. OTHER SECURITIES The breakdown of finance receivables by geographical area is (In millions of euros) 1998 1997 1996 as follows: (In millions of euros) 1998 1997 1996 Investments in majority-owned subsidiaries 136 151 151 France 3,446 3,323 3,603 Investments held Other EU countries 7,325 6,330 5,148 at 20 to 40% 24 18 16 Other countries 127 105 62 Investments held Total 10,898 9,758 8,813 at less than 20% 96 99 352 Other investments, gross 256 268 519 Provisions (89) (84) (77) Maturities are as follows: Net value 167 184 442 (In millions of euros) 1998 1997 1996 Less than one year 5,823 5,339 4,789 The net value of investments in majority-owned subsidiaries was One to five years 5,056 4,399 4,007 73 million euros in 1998, 83 million euros in 1997 and 87 million Greater than five years 19 20 17 euros in 1996. Total 10,898 9,758 8,813 On December 31, 1998, the main listed investment was the following: 14. INVENTORIES Name of the company % held Net value Market value of the securities held of the listed (In millions of euros) 1998 1997 1996 securities BNP 1 % 65 120 Inventories at cost 4,298 4,014 3,632 Provisions (276) (301) (329) Inventories, net 4,022 3,713 3,303 In 1996 and 1997, investments held at less than 20% included the value of the Group's investments in AB Volvo and Elf Aquitaine: 104 million euros and 156 million euros respectively. The net value of inventories is stated below: These holdings were sold during the 1997 fiscal year (note 7). (In millions of euros) 1998 1997 1996 Raw materials and supplies 738 673 566 13. FINANCE RECEIVABLES Work-in-progress 504 473 406 (In millions of euros) 1998 1997 1996 Finished products and parts for automobiles 1,988 1,729 1,595 Dealer financing 2,619 2,253 2,062 Finished products and parts Retail financing 5,498 5,047 4,512 for commercial vehicles 587 540 530 Leasing and similar Other finished products operations 3,200 2,902 2,730 and parts 197 275 194 Gross finance receivables 11,317 10,202 9,304 Long-term leases 8 23 12 Provisions for credit losses (419) (444) (491) Total 4,022 3,713 3,303 Net finance receivables 10,898 9,758 8,813 Gb Ch 4 - 44/76-Angl. Eur.exe 28/04/99 7:57 Page 55

15. ACCOUNTS 18. MARKETABLE SECURITIES AND NOTES RECEIVABLE (In millions of euros) 1998 1997 1996 Accounts and notes receivable can be broken down as follows : Gross value 303 288 182 (In millions of euros) 1998 1997 1996 Less provisions Accounts Marketable securities, and notes receivable 3,060 2,803 2,579 net 303 288 182 Provisions (159) (154) (153) Accounts This item does not include marketable securities considered and notes receivable, net 2,901 2,649 2,426 as cash equivalents, which amounted to 67 million euros in 1998, 130 million euros in 1997, and 96 million euros in 1996. This item does not include accounts receivable from dealers, which in France and several other European countries, are 19. SHAREHOLDERS' EQUITY sold to the Group's financial subsidiaries or other financial institutions whenever the risk of noncollection is transferred Movements in shareholders' equity: to those subsidiaries and institutions. In such cases, they are (In millions of euros) 1998 1997 1996 recorded under accounts and notes receivable. If risk is not Shareholders' transferred, they are recorded in accounts receivable even equity on January 1 6,695 5,758 6,677 though, for legal purposes, the receivable itself has been sold. Par value of shares issued 3 Share premium account 12 16. OTHER RECEIVABLES Dividend (note 19-A) (127) (128) AND PREPAID EXPENSES Change in translation adjustment and other (65) 96 (6) (In millions of euros) 1998 1997 1996 Treasury stocks 9 14 Bond issuance costs Net income 1,349 827 (800) and redemption premiums 24 31 30 Shareholders' Pre-paid expenses 430 497 458 equity on December 31 Tax receivables 712 911 605 (before allocation) 7,861 6,695 5,758 Other receivables 604 714 489 Total 1,770 2,153 1,582 A. The Annual General Meeting of Shareholders of June 11, 1998 decided to distribute 127 million euros in dividends (0.53 euro per share).

17. INVESTMENT LOANS The Annual General Meeting of Shareholders of June 7, 1996 voted to distribute a dividend of 128 million euros (0.53 euro Investment loans primarily consist of interbank loans by finan- per share). Of this, 15 million euros were paid in shares, pur- cial companies and correspond principally to the investment of suant to the option offered by the Annual General Meeting of cash surpluses from industrial and commercial activities: June 7, 1996. Accordingly, the company's share capital (In millions of euros) 1998 1997 1996 increased by 3 million euros through the issue of 790,154 Maturity over one year 227 215 281 new shares (par value 19 euros) at 4 euros. Maturity of less than one year 5,933 3,805 5,254 B. The Joint General Meeting of June 11, 1998 authorized the Total 6,160 4,020 5,535 Board of Directors to convert stock options, on one or more Gb Ch 4 - 44/76-Angl. Eur.exe 28/04/99 7:57 Page 56

56 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

occasions, held by senior managers of the company and its 20. MINORITY INTERESTS associated companies. Such options give the right to subscri- (In millions of euros) 1998 1997 1996 be for new shares issued by the company in connection with Minority interests a capital increase, or to purchase shares acquired by the as at January 1 679 309 328 company though buybacks, pursuant to applicable laws and Dividends (32) (19) (12) regulations. Shares held as treasury stock by Renault S.A., Change previously taken to reduce shareholders' equity, have been in translation adjustment (35) 21 8 earmarked for this resolution and recorded as marketable Change securities. in scope of consolidation 62 366 (12) Minority interest in profits (12) 2 (3) On December 31, 1998 the Group no longer held treasury Minority interests stock on a durable basis. as at December 31 662 679 309

C. Reserves include a nondistributable statutory reserve of 91 The following items have been recorded under "Change in million euros on December 31, 1998, 70 million euros on method of consolidation and other changes in company December 31, 1997 and 70 million euros on December 31, 1996. structure": – in 1998, the capital increases subscribed by the minority sha- D. As a result of these transactions, Renault S.A.'s share reholders of Renault do Brasil Automóveis (43 million euros) capital breaks down as follows: – in 1997, the full consolidation of Cofal and Renault Argentina Number of % of voting Security on June 30, 1997 (295 million euros), the dilution of minority securities held rights type interests following the capital increases of Cofal, subscribed French state 106,037,141 44.22 Shares solely by Renault (270 million euros), and the capital Protocol increases subscribed by the minority shareholders of and associated shareholders(a) 17,247,320 7.19 Shares Renault do Brasil Automóveis (73 million euros). Others(b) 116,514,106 48.59 Shares Total 239,798,567 100.00 21. REDEEMABLE SHARES

(a) On November 21, 1994 the protocol shareholders signed an agreement whereby they retained (In millions of euros) 1998 1997 1996 their entire stake for three months and 80% of the stake for the subsequent 21 months. During the three years following this initial 24-month period (i.e. until November 20, 1999), Redeemable shares any sale involving all or part of that 80%, either to a third party or to another protocol shareholder, would be subject to the preemptive rights of the other partner shareholders. Renault S.A. 1983 153 153 153 (b) Renault employees, former employees, legal beneficiaries and general public. Redeemable shares Renault S.A. 1984 165 165 165 Redeemable shares Diac 1985 35 35 35 Redeemable shares outstanding 353 353 353

The redeemable shares issued in October 1983 and April 1984 by Renault S.A. can be redeemed with a premium on the sole initiative of Renault from 1998. The shares earn a minimum annual return of 9% composed of a fixed portion (6.75%) and a variable portion that depends on consolidated revenues and that is calculated at comparable structure and methods. Returns to the shares in 1998 amount to 34 million euros (32 million euros in 1997 and 32 million euros in 1996) and are carried under financial charges. The redeemable shares are listed on the Paris Bourse. In the course of 1998, the shares, which have a par value of 153 euros, traded at between 487 euros and 271 euros, ex-coupon. Gb Ch 4 - 44/76-Angl. Eur.exe 28/04/99 7:57 Page 57

The return on the redeemable shares issued by Diac in 1985 B. Depending on the laws and practices prevailing in different comprises a fixed portion equal to the annual money-market countries, the Renault Group usually contributes to its rate (TAM) and a variable portion obtained by applying the employees' retirement income by making earnings-related year-on-year increase in Diac's consolidated net income to payments to the national organizations responsible for 40% of the TAM. paying old-age financial benefits. At present, there is no actuarial liability concerning these pension arrangements. The total market value of the redeemable shares, based on the year-end closing price, was 874 million euros in 1998. In addition, some of the Group's companies have granted additional benefits to their employees. These supplementary 22. PROVISIONS FOR PENSIONS benefits, which usually accrue to employees in the course of AND OTHER POST-RETIREMENT their service with the company, consist either of a retirement BENEFITS bonus (in France and most other countries in which the Renault Group operates ) or pension payments (chiefly in the A. These provisions are broken down as follows (in millions of USA and Germany). euros): As regards pensions, contributions are made to external fund 1998 French Foreign Total companies companies managers. The aim of such funds is to cover all or part of pension payments made to employees during retirement. Provision These commitments are periodically reviewed by indepen- for pension commitments 641 76 717 dent actuaries. The value of these funds is deducted from the Provision for medical expenses 365 365 liability to which they are irrevocably allocated.

Total 641 441 1,082 The assumptions used by French companies are as follows: 1998 1997 1996 1997 French Foreign Total companies companies Retirement age 60 yrs 60 yrs 60 yrs Salary level 3.5% to 4% 3.5% to 4% 3.5% to 4% Provisions for pension commitments 613 66 679 Discount rate 6.5% 6.5% 6.5% Provision for medical expenses 390 390 Total 613 456 1,069 The assumptions used by the US subsidiary Mack Trucks, Inc., the main foreign entity having significant pension com- 1996 French Foreign Total mitments, are as follows: companies companies 1998 1997 1996 Provisions Discount rate 8% 8% 8% for pension commitments 557 72 629 Return on plan assets 9.5% 10.5% 10.5% Provision for medical expenses 342 342 Total 557 414 971 Gb Ch 4 - 44/76-Angl. Eur.exe 28/04/99 7:57 Page 58

58 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The Group's pension commitments are broken down as follows: (In millions of euros) 1998 1997 1996

Vested benefits of employees of French companies 804 800 752 Unrecognized transition obligations (163) (187) (195) Provisions for pension and other post-retirement benefits in French companies 641 613 557 Vested benefits of employees of Mack Trucks, Inc. 615 594 520 Unrecognized transition obligation (42) (52) (82) Fair value of plan assets (621) (603) (468) Other items 27 44 27 Pension provisions at Mack Trucks, Inc. (21) (17) (3) Provisions for pension and other post-retirement benefits relating to foreign companies 97 83 75 Total 717 679 629

In view of the sharp fall in the interest rates used to discount Medical costs and other costs for the year break down as fol- the pension commitments of the Group's French companies, lows: provisions were revised at January 1, 1996. In accordance with (In millions of euros) 1998 1997 1996 the Group's accounting principles, the effect has been spread Additional over the remaining years of service of employees who are still benefits acquired 3 3 3 with the company. Discount effect 30 30 26

C. In addition to the pension commitments described above, Net cost during the year 33 33 29 Mack Trucks, Inc. is committed to bearing the cost of employees' medical costs and life insurance. These costs are accounted for The rate of cost growth in medical and other expenses in these in accordance with the method described in Note 1-F. plans has been assumed to be declining to the annual limits per employee set in labor agreements in 1992, falling gra- The amounts booked for these plans are broken down as fol- dually to 7% in 2001 for the larger of the plans and to 9% in lows: 1996 for the other plan. Beyond these dates, the labor agree- (In millions of euros) 1998 1997 1996 ments effectively eliminate the growth in the employer's Accumulated commitments share of medical expenses. • Retired employees 244 261 224 • Active employees 121 129 118 Provisions for commitments 365 390 342 Gb Ch 4 - 44/76-Angl. Eur.exe 28/04/99 7:58 Page 59

By way of example, a 1% annual increase in the above rates In recent years, the Group has adopted a number of restruc- would have resulted in a 4 million euro increase in the liabili- turing measures in order to streamline production facilities. ty and the annual cost in 1998, composed of the sum of the These measures have chiefly involved workforce reductions vested benefits earned during the year and the discount in the form of early retirement, guaranteed income arrange- effect of 0.3 million euros. The weighted average rate used to ments, internal and external reassignments and redundan- calculate the present value of liabilities remained unchanged cies. In 1998, 196 million euros in new provisions was booked at 8% between 1997 and 1998. (186 million euros in 1997 and 451 million euros in 1996). A total of 235 million euros in restructuring provisions was uti- 23. OTHER PROVISIONS lized in 1998 (268 million euros in 1997 and 162 million euros FOR RISKS AND LIABILITIES in 1996). The increase in provisions for product warranty costs and Other provisions for risks and charges break down as follows other provisions is attributable to the increase in sales (in millions of euros): volumes, changes in commercial terms and conditions and, 1998 Over Under Total one year one year with respect to 1997, changes in the scope of consolidation. Provisions for restructuring costs 72 374 446 Provisions for warranty costs 729 729 Other 465 437 902 Total 537 1,540 2,077

1997 Over Under Total one year one year Provisions for restructuring costs 81 430 511 Provisions for warranty costs 570 570 Other 355 453 808 Total 436 1,453 1,889

1996 Over Under Total one year one year Provisions for restructuring costs 26 567 593 Provisions for warranty costs 374 374 Other 263 304 567 Total 289 1,245 1,534 Gb Ch 4 - 44/76-Angl. Eur.exe 28/04/99 7:58 Page 60

60 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

24. BONDS Bond issues: AND OTHER BORROWINGS (In millions of euros) 1998 1997 1996

A. Bond debt and other borrowings break down as follows: Renault S.A. : 1998 issue (In millions of euros) 1998 1997 1996 at 3-month Pibor 76 Bonds 3,140 2,855 2,286 1996 issue at 5.80% 305 305 305 Other debt securities 895 921 825 1994 issue at 6.25% 305 305 305 Bank loans 589 486 436 1993 issue at 7.25% 229 229 229 Other financial debt 106 74 50 1993 issue at 7.5% 229 229 229 Portion 1992 issue at 9% 301 301 301 over one year 1986 issue at 10.625% 15 14 14 of long-term debt 4,730 4,336 3,597 1985 issue at 12.5% 293 Current portion of long-term debt 824 995 1,275 Total 1,460 1,383 1,676 Total long-term debt 5,554 5,331 4,872 Other bonds of industrial and commercial Short-term debt 9,723 9,752 11,293 subsidiaries 2 4 Total 15,277 15,083 16,165 Compagnie Financière Renault 1985 issue at 12% 152 Renault Crédit International : 1998 issue at 3-month Libor 153 1997 issue at 3-month Libor 153 153 1997 issue at 3-month Pibor 305 305 1997 issue at 6.30% 213 213 1996 issue at 6.60% 305 305 305 1995 single-coupon issue 197 181 165 1993 issue at 7.5% (April) 152 152 152 1993 issue at 7.5% (November) 152 152 152 1992 issue at 8.25% 154 Other bonds 50 49 50 Total 1,680 1,510 978 Diac 1989 issue at 8.70% 76 76 Total 76 76 Accrued interest 96 108 130 Total 3,236 3,079 3,016

(a) Before interest rate swap (see note 7). Gb Ch 4 - 44/76-Angl. Eur.exe 28/04/99 7:58 Page 61

B. Long-term borrowings mature as follows: F. CREDIT LINES (In millions of euros) 1998 1997 1996 On December 31, 1998 the Renault Group's open credit lines Under one year 825 995 1,275 with banks amounted to the equivalent of 9,474 million euros Between 1 and 2 years 1,298 784 906 in different currencies, with maturities extending to 2003 Between 2 and 3 years 596 1,013 183 (with the short-term portion amounting to 2,742 million euros. Between 3 and 4 years 480 709 421 This compares with 10,190 million euros and 2,738 million Between 4 and 5 years 607 227 427 euros on December 31, 1997, and 9,558 million and 2,483 mil- Over 5 years 1,748 1,603 1,660 lion euros on December 31, 1996. Total 5,554 5,331 4,872 A total of 2,000 million euros of these credit lines was in use on December 31, 1998, 2,546 million euros on December 31, Short-term drawings on credit lines with maturities of more 1997 and 2,625 million euros on December 31, 1996. than one year are recorded under long-term borrowings. The average commission paid in 1998 was 0.084% of confir- C. An analysis by currency of bonds and other borrowings, med credit lines, compared with 0.082% in 1997 and 0.086% before giving effect to derivative financial instruments, is as in 1996. follows: (In millions of euros) 1998 1997 1996 French francs 8,992 7,954 8,832 25. OTHER LIABILITIES Other Other liabilities mainly include sundry taxes, staff remunera- euro zone currencies 3,407 3,852 3,838 tion and social charges on wages, in the following amounts: Other EU currencies (outside euro zone) 1,453 1,883 1,206 (In millions of euros) 1998 1997 1996 Other currencies 1,425 1,394 2,289 Tax liabilities 1,231 912 478 Total 15,277 15,083 16,165 Payroll 1,069 956 860 Other 1,440 1,271 1,356 Total 3,740 3,139 2,694 D. Before giving effect to derivative financial instruments, long- term fixed-rate borrowings amounted to 3,882 million euros on The increase in tax liabilities is chiefly attributable to the rise December 31, 1998, 3,779 million euros on December 31, 1997 in taxes payable in 1998. and 4,190 million euros on December 31, 1996. The corresponding figures for floating-rate borrowings (usually based on LIBOR) were 1,672 million euros, 1,552 million euros and 682 million euros.

E. Average weighted interest rates on financial debt, before giving effect to derivative financial instruments, are broken down as follows: (In millions of euros) 1998 1997 1996 Short-term debt 4.32% 4.78% 4.13% Current portion of long-term debt 3.82% 4.35% 8.24% Total financial debt due in less than one year 4.29% 4.74% 4.55% Gb Ch 4 - 44/76-Angl. Eur.exe 28/04/99 7:58 Page 62

62 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

26. NET FINANCIAL INDEBTEDNESS BY ACTIVITY

(In millions of euros) Industrial Sales Balance and commercial financing sheet December 31, 1998 activities activities total Bonds 1,489 1,747 3,236 Other borrowings 3,099 8,942 12,041 Finance receivables (10,898) (10,898) Investment loans (5,963) (197) (6,160) Marketable securities (222) (81) (303) Cash and cash equivalents (758) (329) (1,087) Interactivity operations 426 (426) NET FINANCIAL INDEBTEDNESS (1,929) (1,242)

Industrial Sales Balance and commercial financing sheet December 31, 1997 activities activities total Bonds 1,424 1,655 3,079 Other borrowings 3,618 8,386 12,004 Finance receivables (9,758) (9,758) Investment loans (3,481) (539) (4,020) Marketable securities (205) (83) (288) Cash and cash equivalents (1,427) (157) (1,584) Interactivity operations 390 (390) NET FINANCIAL INDEBTEDNESS 319 (886)

Industrial Sales Balance and commercial financing sheet December 31, 1996 activities activities total Bonds 1,914 1,102 3,016 Other borrowings 5,577 7,572 13,149 Finance receivables (8,813) (8,813) Investment loans (5,122) (413) (5,535) Marketable securities (158) (24) (182) Cash and cash equivalents (824) (283) (1,107) Interactivity operations 44 (44) NET FINANCIAL INDEBTEDNESS 1,431 (903)

27. FINANCIAL INSTRUMENTS

A. MANAGEMENT OF CURRENCY AND INTEREST RATE RISK

The corresponding commitments, expressed in terms of notional amount where appropriate, are broken down as follows: (In millions of euros) 1998 1997 1996 FOREIGN EXCHANGE RISK: CURRENCY SWAP Purchases 461 861 839 Sales 460 858 845 Forward exchange contracts and options: Purchases 12,551 10,934 15,715 Sales 12,411 10,799 15,802 INTEREST RATE RISK: Interest rate swap 27,609 27,806 16,095 FRAs Purchases 1,398 4,827 3,270 Sales 1,198 5,433 5,308 OTHER INTEREST RATE HEDGING INSTRUMENTS Purchases 3,250 4,540 2,678 Sales 3,311 4,578 3,661

64 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

B. COUNTERPARTY RISK

The Group controls the counterparty risk inherent in using financial instrument contracts by dealing solely with leading financial institutions and by establishing limits for each institution.

As a result, the Group considers that it is not exposed to any notable concentration of credit risk.

C. MARKET VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts on the balance sheet and the estimated market values of the Group's financial instruments are broken down as follows: (In millions of euros) 1998 1997 1996 Book value Market value Book value Market value Book value Market value ASSETS

Other listed securities(a) 69 124 69 87 329 464 Other unlisted equity securities (b) 98 NA 115 NA 113 NA Other equity securities (I) 167 NA 184 NA 442 NA Securities included in other financial assets (II) 88 88 103 104 Trading securities 78 78 110 110 15 15 Other securities 225 272 178 182 167 177 Marketable securities (III) 303 350 288 292 182 192 Total investment portfolio (I+II+III) 470 NA 560 NA 727 NA Loans 6,160 6,173 4,020 4,028 5,535 5,552 Finance receivables 10,898 10,869 9,758 9,704 8,813 8,893 Cash and cash equivalents 1,087 1,584 1,107 1,107 LIABILITIES Bonds (3,236) (3,340) (3,079) (3,242) (3,016) (3,190) Other borrowings (12,041) (12,099) (12,004) (12,010) (13,149) (13,170) 3,338 NA 839 NA 17 NA

(a) The difference between market and book value can be analyzed as follows: - unrealized capital losses: 1 million euros for 1997 and 13 million euros for 1996. - unrealized capital gains: 55 million euros for 1998, 18 million euros for 1997 and 159 million euros for 1996. (b) It has not been possible to determine the market value of equity stakes in some unlisted companies with which the Group does business and for which comparisons with listed companies are unavailable. Gb Ch 4 - 44/76-Angl. Eur.exe 28/04/99 7:58 Page 65

Estimated market value of off-balance sheet instruments: (In millions of euros) 1998 1997 1996 Assets Liabilities Assets Liabilities Assets Liabilities Forward foreign exchange contracts 12,629 12,594 9,717 9,645 13,830 13,927 Currency swaps 470 479 867 867 740 830 Interest rate swaps 412 302 240 455 230 315 Interest rate futures 1 4 3 3 8

Assumptions and methods adopted: – Cash and cash equivalents

Estimated market values are based on information available The value recorded on the balance sheet is considered the on the markets and arrived at using valuation methods appro- market value. priate to the types of instrument in question. However, the – Bonds and other financial debt methods and assumptions used are theoretical by nature, and judgement plays a major role in interpreting market data. The market value of listed bonds has been estimated at year- Adopting different assumptions or pricing methods could the- end market prices. As regards the Finance Division's debts refore have a significant impact on the values estimated. evidenced by securities issued with a life of less than 90 days, the value recorded on the balance sheet is considered the Market values have been determined on the basis of informa- market value. The market value of other financial debt was tion available at the end of the fiscal year and do not therefore determined by discounting future cash flows at the rates offe- take account of subsequent movements. red to Renault on December 31, 1998, December 31, 1997 and The main assumptions and valuation methods are as follows: December 31, 1996 for loans having similar conditions and maturities. – Securities (marketable securities, redeemable securities and other securities) – Off-balance sheet foreign exchange instruments

The market value of securities is determined mainly by refe- The market value of forward contracts is estimated on the rence to market prices. Redeemable securities and other basis of prevailing market conditions. The market value of securities for which there is no traded price have been esti- currency swaps is determined by discounting cash flows using mated by reference to the market price of similar securities, if exchange rates and interest rates prevailing on December 31, such exist. 1998, December 31, 1997 and December 31, 1996 for the contracts' residual lives. – Investment loans – Off-balance sheet interest rate instruments For loans with an original maturity of less than three months and for floating-rate loans, the value recorded on the balance The market value of interest rate swaps represents the sheet is considered to be the market value. Other fixed-rate amount Renault would receive (or pay) if it settled outstan- loans have been estimated by discounting future cash flows ding contracts at the end of the fiscal year. Unrealized capital using the rates offered to Renault on December 31, 1998, gains or losses, determined on the basis of prevailing interest December 31, 1997 and December 31, 1996 for loans having rates and the quality of the counterparty to each contract, is similar conditions and maturities. taken into account on December 31, 1998, December 31, 1997 and December 31, 1996. – Sales-finance receivables

Sales-finance receivables at fixed rates have been estimated by discounting future cash flows at rates that would be applicable to similar loans (conditions, maturity and debtor quality) as at December 31, 1998, December 31, 1997 and December 31, 1996. Gb Ch 4 - 44/76-Angl. Eur.exe 28/04/99 7:58 Page 66

66 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

D. ANALYSIS OF SECURITIES PORTFOLIO (In millions of euros) 1998 1997 1996 Book Market Book Market Book Market value value value value value value HELD-TO-MATURITY SECURITIES Debt securities issued by central or local authorities 84 84 81 82 Debt securities issued by Group companies 15 15 Other held-to-maturity debt securities 4 4 7 7 (I) 88 88 103 104 Trading securities (II) 78 78 110 110 15 15 OTHER SECURITIES Debt securities issued by central or local authorities 4 4 6 6 20 20 Debt securities issued by industrial and commercial companies Debt securities issued by Group companies 66 66 58 58 52 52 Other debt securities 108 113 84 88 95 105 Equities 47 89 99 117 329 464 (III) 225 272 247 269 496 641 Total for valued securities (I+II+III) 303 350 445 467 614 760 Securities for which the market value cannot be determined (IV) 99 115 113 Total 402 560 727 Gb Ch 4 - 44/76-Angl. Eur.exe 28/04/99 7:58 Page 67

Securities other than trading securities are analyzed by maturity:

(In millions of euros) Held-to-maturity securities Other securities Book Market Book Market 1998 value value value value Under one year 100 114 Between one and five years 64 64 Between five and ten years Over ten years 55 Shares 47 89 Total 225 272

Held-to-maturity securities Other securities Book Market Book Market 1997 value value value value Under one year 88 88 67 70 Between one and five years 80 82 Between five and ten years Over ten years Shares 100 117 Total 88 88 247 269

Held-to-maturity securities Other securities Book Market Book Market 1996 value value value value Under one year 3 3 123 132 Between one and five years 100 101 41 43 Between five and ten years 33 Over ten years 2 2 Shares 329 463 Total 103 104 496 641 Gb Ch 4 - 44/76-Angl. Eur.exe 28/04/99 7:58 Page 68

68 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

28. OTHER COMMITMENTS AND CONTINGENCIES A. THE GROUP IS COMMITTED FOR THE FOLLOWING AMOUNTS: (In millions of euros) 1998 1997 1996 Customer guarantees and endorsements (sales financing) 11 4 4 Other guarantees granted 2,456 1,863 1,340 Pledged or mortgaged assets in favor of consolidated subsidiaries 10 20 17 Opening of confirmed credit lines for customers 377 218 64 Securities payable from repurchase or forward transactions 8 5 229

The "Other guarantees granted" item includes rent from irre- inter alia, to acquire the Technocentre at any time between vocable leases to which the Group is committed. These are 2000 and 2010 at market prices. The total cost of the real broken down as follows: estate investment is estimated at 0.8 billion euros. In June 1995, the Group sold the land and the building under construc- (In millions of euros) 1998 1997 1996 tion to the real estate company at cost. Year following the end of the fiscal year 59 53 58 C. The Group is periodically subject to tax audits in France and Subsequent years 193 195 206 other countries in which it operates. Tax adjustments are taken to the financial statements. Contested tax adjustments At December 31, 1998 the Group was committed to firm are also taken into account for an amount equal to the estima- investment orders of 979 million euros compared with 887 ted risk. million euros on December 31, 1997 and 957 million euros on December 31, 1996. D. In general, all litigation in which Renault or Group companies is involved is examined at year-end. After seeking the B. In 1994, Renault decided to combine its new-vehicle resear- opinion of legal advisors, the provisions deemed necessary ch and develop units in a single site, the Technocentre at are, where appropriate, set aside to cover the estimated risk. Guyancourt. In March 1995, the Group signed an agreement within a group of investors under which the Technocentre would be built by a real estate company, with 15% owned by Renault and 85% by the investors. This company leases the center to Renault at prevailing market rents under a lease expiring in 2010. The agreement gives Renault the option, Gb Ch 4 - 44/76-Angl. Eur.exe 28/04/99 7:58 Page 69

29. COMPANIES CONSOLIDATED ON DECEMBER 31, 1998 RENAULT GROUP’S INTEREST, % FULLY-CONSOLIDATED COMPANIES 1998 1997 1996 Cofiren Renault et Cie France 100 100 100

70 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

72 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

RENAULT GROUP’S INTEREST, % 1998 1997 1996 Renault Gest Leasing Portugal 100 100 95 Renault Crédit S.A. Switzerland 100 100 100 Accordia Italy 100 - - Diac Belgique Belgium 100 - - Investment Financing Société Immobilière pour l’Automobile et la Mécanique France 100 100 100 Société de Financement des Moyens Informatiques France 100 100 100 Holding Companies and Other Credit Institutions Renault Holding Switzerland 100 100 100 Compagnie Financière Renault France 100 100 100 Société Financière et Foncière France 100 100 100 Renault Finance Switzerland 100 100 100 Renault Acceptance BV Netherlands 100 100 100 Renault Acceptance Ltd Great Britain 100 100 100 Renault Acceptance GmbH Germany 100 100 100 Service Companies Société Internationale de Gestio et de Maintenance Automobile France 100 100 100 Réalisation, Etudes, Courtage et Assurances France 100 100 100 Overlease España (ex. Renault Services Espagne) Spain 96 96 96 Difusora de Seguros S.A. Spain 96 96 96 Gest Seguros Portugal 100 100 96 Renault Conseil Assistance France - - 100 Renault Versicherungs Dienst Germany 100 100 100 Renault Services S.A. Belgium 100 100 100 Gb Ch 4 - 44/76-Angl. Eur.exe 28/04/99 7:58 Page 74

74 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

COMMERCIAL VEHICLES DIVISION Société Charolaise de Participations France - 50 50 Hansa Auto Oy Finland 50 50 - Gb Ch 4 - 44/76-Angl. Eur.exe 28/04/99 7:58 Page 75

V. Information on the principal subsidiaries

88 AUTOMOBILE DIVISION

F.A.S.A. RENAULT COMPAGNIE D'AFFRÈTEMENT Carretera de Madrid, km 185 ET DE TRANSPORT (C.A.T.) 47008 Valladolid 82, rue du Point du Jour Spain 92100 Boulogne France 92.2% owned by Renault. The F.A.S.A. Renault share is listed on the Madrid stock exchange. 70 % owned by Renault and 30 % by Renault V.I.

Activity: manufacturing and marketing through its sales Activity: transportation of vehicles and components from subsidiary Recsa, of Renault passenger cars and light com- Renault production plants. C.A.T. also offers services to commercial vehicles in Spain. panies outside the Group for approximately 20% of its sales.

Plants in Valladolid, Palencia and Séville. 1998 revenues: FRF 6.9 billion.

1998 Revenues: 1,024 billion pesetas (local consolidated Workforce: 2,060 people. figures).

Workforce: 13,944 people (local consolidated figures).

RENAULT AGRICULTURE 7, rue Dewoitine 78140 Vélizy-Villacoublay France

Wholly owned by Renault.

Activity: design, manufacturing and marketing of agricultural tractors.

Plant in Le Mans.

1998 revenues: FRF 2.8 billion (in accordance with Renault consolidation standards).

Workforce: 3,688 people.

RENAULT FRANCE AUTOMOBILES 34, quai du Point du Jour 92100 Boulogne-Billancourt France

Wholly owned by Renault.

Activity: trade, repairing, maintenance and leasing of passenger cars and LCVs.

47 sites in Fance

1998 Revenues: FRF 21,264 billion.

Workforce: 7,356 people. GbF Ch 6/7/8 -88/108Angl.exe 28/04/99 6:37 Page 89

COMMERCIAL VEHICLES DIVISION 89

RENAULT V.I. S.A. MACK TRUCKS INC. 129, rue Servient World Headquarters “La Part-Dieu” 2100 Mack Boulevard 69003 Lyon Allentown, Pennsylvania 18105, U.S.A.

France Wholly owned by Renault V.I. Wholly owned by Renault V.I. Activity: design, manufacturing and marketing of heavy duty Activity: design, manufacturing and marketing of a complete trucks (U.S. Class 8). range of trucks from 3.5 to 44 tons, as well as coaches and Plants in Winnsboro, Macungie, Hagerstown (USA) buses. 1998 revenues: USD 2,772.2 million (Renault V.I. consolidated Plants in Blainville, Bourg en Bresse, Limoges, Valbonne, figures). Vénissieux-Saint Priest. Workforce: 5,720 people (Renault V.I. consolidated figures). 1998 revenues: FRF 22,445 million (company accounts).

Workforce: 11,443 people (company accounts).

FINANCE DIVISION

COMPAGNIE FINANCIÈRE RENAULT SOCIÉTÉ FINANCIÈRE ET FONCIÈRE 34, quai du Point du Jour 27-33, quai Le Gallo 92109 Boulogne-Billancourt Cedex 92109 Boulogne-Billancourt Cedex France France

Wholly owned by Renault. Wholly owned Compagnie Financière Renault.

Activity: holding company for the financial companies of the Activity: centralized cash management Renault Group: sales financing for Renault Vehicles and custo- for the Renault Group. mer assistance services, Renault Group cash management. Total assets at 31/12/1998: FRF 2,169 million. Total assets at 31/12/1998: FRF 129 billion (C.F.R. consolida- Workforce: 37 people. ted figures). RENAULT FINANCE Workforce at 31/12/1998: 10 people. Avenue de Rhodanie 48 RENAULT CRÉDIT INTERNATIONAL Case postale 1002, Lausanne 14, avenue du Pavé Neuf Switzerland

93168 Noisy-le-Grand Cedex Wholly owned by Renault Holding (a wholly owned subsidiary France of Compagnie Financière Renault). Wholly owned by Compagnie Financière Renault. Activity: It acts as counterparty in foreign exchange opera- Activity: holding company for sales financing companies and tions and interest rate management for the Renault Group’s companies offering assistance and services to Renault Group industrial and commercial activities and is responsible for customers. the deposits of Renault S.A., thus helping to optimize the management of counterparty risk. It carries out market ope- Net amount financed in 1998: 40.7 billion (R.C.I. consolidated rations on its own account. figures). Total assets at 31/12/1998: CHF 40 billion. Total assets at 31/12/1998: 86.5 billion (R.C.I. consolidated figures). Workforce: 27 people.

Workforce: 3,203 people (consolidated figures). GbF Ch 6/7/8 -88/108Angl.exe 28/04/99 6:37 Page 90

Hierarchy

RENAULT

90 AUTOMOBILES FINANCIAL AND SERVICE SUBSIDIA

100% COMPAGNIE FINANCIÈRE RENAULT

PEUGEOT REAL ESTATE AND IT INTERNATIONAL CASH MA FINANCING FOR THE TRADE AND REF FRANCE RENAULT GROUP OF THE REN

50% 50% 50% 20% 100% FRANCAISE SOCIÉTÉ 100% 33% GIE GIE SODECHANGE RENAULT 100% REN DE PRV TRANSMISSIONS SIRHA SODEVI ALPINE SIAM FIN MÉCANIQUE TA 96 AUTOMATIQUES TECHNOCENTRE (Switzerland) HOLDING RDIC 50% 50% 50% 80% 100% 100% 100% 100% 77%

1% 1% 1% 1% 1% 2% S 100% 100% SIMCRA RENAULT RENAULT RENAULT RENAULT RENAULT SODICAM TECHNOLOGIE EXPLOITATION RDIC FLINS LE MANS CLÉON SANDOUVILLE DOUAI GROUP 4% REN INFORMATIQUE ACCEP 99% 99% 99% 99% 99% 100% 17% (Neth 52% 3% SI ÉPONE REN RENAULT 100% 14% 100% 99% 100% LEA FRANCE (Ger AUTOMOBILES RENAULT RENAULT SOFRASTOCK GROUP BV COFIREN 45% VERSICHERUNGS RENAULT 5% DIENST FUNFRAP COMMERCIAL 86% 1% (Portugal) 25% SICOFRAM G SUBSIDIARIES LEA 25% 25% 100% 95% (Por MAUBEUGE GIEAT FONDERIES CONSTRUCTION SBFM SYSTÈMES DU POITOU SMV RENAULT RENAULT AUTOMOBILE CAT GROUP 100% V.I. AGRICULTURE SOFIMIN 100% 100% 25% 100% 100% S 69% 31% 100% (Por

100% 100% 100% 75% 80% 100% 100% 100% G SEG RENAULT (Po METAL SORECI SNR GROUP CREICA ETG TEMPLE SOVAB CREOS AUTOMATION

25% 16% 50% 50%

TORRINGTON NADELLA RENAULT EUROPE GROUP V.I. ALPINE REN RENAULT BELGIQUE LEA INTERNATIONAL (Sp 10% RECSA 90% and its 100% subsidiaries OVE FASA 100% ES REVOZ RENAULT MECONSA RENAULT RENAULT RENAULT RENAULT RENAULT BELGIQUE INDUSTRIE (Slovenia) ESPAÑA SA (Spain) ÖSTERREICH ITALIA (Spain) 25% LUXEMBOURG BELGIQUE 54% 100% 92% 100% 100% 100% 100% D RENAULT (S HUNGARIA

75% 60% 60% 60% 66% 72%

DEUTSCHE RENAULT RENAULT RENAULT FUNFRAP RENAULT RENAULT * NEDERLAND * UK SUISSE ACC (Portugal) PORTUGUESA (I 40% 40% 40% 100% 16% 28% 1% 100% SVE 100% (It RENAULT RENAULT RENAULT RENAULT RDI POLSKA GROUP BV RETAIL GROUP HOLDING

LATIN REF RENAULT 100% AMERICA (It CESKA RÉPUBLIKA

REN 24% 80% 4% SER 60% 96% RENAULT RENAULT BEL SOFASA COFAL DO BRASIL COMERCIAL (Colombia) AUTOMÓVEIS DO BRASIL

58% RENAULT GROUP (Argentina) AFRICA ASIA

OYAK 1% RENAULT MAÏS MOROCCO RENAULT (Turkey) (Turkey) 50% 51% 49% GbF Ch 6/7/8 -88/108Angl.exe 28/04/99 6:37 Page 91

The Renault Group (Consolidated companies) on December 31, 1998

RENAULT

NANCIAL AND SERVICE SUBSIDIARIES COMMERCIAL VEHICLES 91

100% 100% COMPAGNIE FINANCIÈRE RENAULT RENAULT V.I.

ONAL CASH MANAGEMENT SALES FINANCING E AND REFINANCING OF THE RENAULT GROUP AND SERVICES

100% 100% 100% 100% 100% 100% RENAULT 100% RENAULT RENAULT HANGE RENAULT CREDIT V.I. 100% MACK erland) HOLDING FINANCE RTI INTER- CHARDIN INTERNATIONAL FINANCE AUTOMOBILE VAL D’OR TRUCKS, (UK) INC. * 100% 40% FINER 100% (Italy) SFF 29% 100% 71% RVI 100% RVI BELGIQUE (Italy) 100% RENAULT 45% RENAULT ACCEPTANCE GmbH RTC (Germany) DIAMOND LEASE ACCEPTANCE BV (Belgium) (UK) 80% (Netherlands) 20% 100% 100% RVI RVI LKW (Austria) RENAULT 100% RENAULT 100% LIEGE RENAULT 40% 100% LEASING FINANZHOLDING SOFRAFI (Germany) (Germany) SA RENAULT RENAULT 8% 92% 100% RVI VERSICHERUNGS TRUCK RVI LKW Lastbiler DIENST 5% IRELAND (Germany) (Denmark) 100% 40% GEST SGPS COGERA SOLOCVI LEASING (Portugal) (France) (Portugal) 100% 100% RVI RENAULT TRUCKS Nubag 100% POLSKA 95% 40% DIAMOND (Switzerland) RENAULT 100% FINANCE SFAC DIAC (UK) (Portugal) GEST (France) (Portugal) RVC 100% (Portugal) 10% 100% 100% GEST 42% 58% SEGUROS 90% (Portugal) SOGESMA (France) RVI (Spain)* 100% 100% 49% SATAU 100% RENAULT 51% DIAC 100% FINANCIACIONES LOCATION RENAULT (Spain) (France) LEASING 94% (Spain) KAROSA 100% (Czech Republic) RENAULT 50% 100% OVERLEASE BANK RECA ESPAÑA (France) (Austria) 40% SOCIÉTÉ DE TRANSMISSION 100% BOUTHÉON 100% 100% DISSA RCI Gmbh SIGMA (Spain) (France) (Austria) 100% COMELA

100% 100% FINRENAULT ACCORDIA (Italy) (Italy) 100% SOCIÉTÉ CHAROLAISE DE 100% PARTICIPATIONS 50% RENAULT OVERLEASE SVEVIAFIN ACCEPTANCE LTD NV 75% (Italy) (UK) (Netherlands) HEULIEZ 100% BUS 50% 100% RENAULT REFACTOR RFS CRÉDIT (Italy) (UK) BELGIQUE 100% RENAULT 100% BUS 100% RENAULT 100% OVERLEASE RENAULT SERVICES CRÉDIT 50% (Belgium) HANSA BELGIQUE SA (Switzerland) AUTO OY (Finland) 100% 100%

100% DIAC COMMERCIAL (Belgium) FRANCE V.I. SUBSIDIARIES LAUDATE

100% 100%

Fully consolidated subsidiary

Subsidiaries accounted for under the equity method

Subsidiaries consolidated on a proportionate basis

Non-consolidated company

* * and its subsidiaries GbF Ch 6/7/8 -88/108Angl.exe 28/04/99 6:37 Page 92

VI. Certification

92 CERTIFICATION BY THE PERSON REPONSIBLE FOR THE ACCURACY OF THIS DOCUMENT

Excluding the annual statements of Renault S.A., this document is a translation of the Annual Report of the Renault Group for 1998 registered as a reference document by the ”Commission des Opérations en Bourse” on April 8, 1999, under the number R 99-049.

A full English translation of the statements of Renault S.A. is available from Renault, 34, quai du Point du Jour, 92109 Boulogne-Billancourt, France. GbF Ch 6/7/8 -88/108Angl.exe 28/04/99 6:37 Page 93

93 GbF Ch 6/7/8 -88/108Angl.exe 28/04/99 6:37 Page 94

VII. Joint Annual General Meeting June 10, 1999

94 DRAFT RESOLUTIONS

ORDINARY BUSINESS The Annual General Meeting takes note that the following First resolution (Approval of the accounts for the year) dividends have been paid for the past four fiscal years:

The Annual General Meeting, having taken note of the Year Net Dividend Tax credit Gross dividend Directors' Report and the auditors' general report on the 1994 3.50 1.75 5.25 accounts for the year ending December 31, 1998, hereby approves the accounts for the year as presented, showing 1995 3.50 1.75 5.25 income of FRF 5,990,300,544.84 (EUR 913,215,431.02). It 1996 0 0 0 also approves the transactions reflected in these accounts or 1997 3.50 1.75 5.25 summarized in these reports.

The Annual General Meeting therefore gives the Directors Third Resolution (Agreements falling within the scope of discharge of the execution of their term of office in respect of Article 101 of the 1966 Companies Act) the past financial year. The Annual General Meeting takes note that, according to Second resolution (Appropriation of the income for the year) the auditors' special report, the auditors have not been informed of any new agreement authorized by the Board during The Annual General Meeting decides on the following appro- the year ended December 31, 1998 and falling within the sco- priation of the year's income: pe of Article 101 of the Act of July 24, 1966 (Companies Act). Income for the year ...... FRF 5,990,300,544.84 Fourth resolution (Renewal of a director's term of office) Allocation to legal reserve ...... / The Annual General Meeting renews the term of office of Mr Balance ...... FRF 5,990,300,544.84 Jean-Luc Lagardère as a director for a period of six years, that is, until the Annual General Meeting called to approve Income carried forward the accounts for the year to December 31, 2004. from previous years...... FRF 3,587,281,213.01 Fifth resolution (Renewal of a director's term of office) Distributable income for the year..... FRF 9,577,581,757.85 The Annual General Meeting renews the term of office of Mr Dividend...... FRF 1,198,992,835.00 Louis Schweitzer as a director for a period of six years, that Retained earnings...... FRF 8,378,588,922.85 is, until the Annual General Meeting called to approve the accounts for the year to December 31, 2004.

Sixth resolution (Ratification of the appointment of a Each eligible share will receive a dividend of FRF 5 (EUR director) 0.76225) carrying the right to a dividend tax credit (avoir fiscal) of: The Annual General Meeting ratifies the appointment as a director of Mrs Jeanne Seyvet, named as a representative of the – FRF 2.50 (EUR 0.38) if the credit will be utilized either by a French State by a decree dated December 11, 1998 and which natural person or, pursuant to Article 146-2 of the Tax Code, was the subject of a vote at the Board's meeting on December by a legal entity liable for corporate income tax 15, 1998. Mrs Jeanne Seyvet succeeds Mr Didier Lombard for the – FRF 2.25 (EUR 0.34) in other cases remainder of his term of office, that is to say, until the Annual General Meeting called to approve the accounts for the year to The dividend will be paid on July 2, 1999. December 31, 2000. Assuming that the company holds some of its own shares as Seventh resolution (Discharge of a director) treasury stock, the corresponding unpaid dividend will be taken to retained earnings. The Annual General Meeting gives full and final discharge to GbF Ch 6/7/8 -88/108Angl.exe 28/04/99 6:37 Page 95

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Mrs Anne Le Lorier, whose term of office expired during the – reducing the share capital, should the case arise, by canceling year to December 31, 1998. all or part of its shares.

Eighth resolution (Discharge of a director) Such purchases can be effected by any means, including over- the-counter trades and block trades, and during the periods to The Annual General Meeting gives full and final discharge to be decided by the Board of Directors. Further, any shares thus Mr Didier Lombard, whose term of office expired during the acquired can be sold or transferred by any means. year to December 31, 1998. The Annual General Meeting sets the maximum bid price at Ninth resolution (Discharge of a director) EUR 60 (FRF 393.57) per share and the maximum ask price at The Annual General Meeting gives full and final discharge to Mr EUR 15 (FRF 98.39) per share. Further, the maximum number of Gérard Muteau, whose term of office expired during the year to shares that may be acquired in this way shall not exceed 10% of December 31, 1998. the share capital.

Tenth resolution (Report of the auditors on redeemable In the event of capitalization of reserves and free distribution of shares) shares, as well as a stock split or reverse stock split, the above prices will be multiplied by a coefficient equal to the ratio bet- The Annual General Meeting takes note of the auditors' ween the number of shares making up the share capital before report on the factors taken into account in determining the and after the transaction. remuneration of redeemable shares (titres participatifs). This authorization is granted for a period which will expire at Eleventh resolution (Authorization for share buybacks) the next Annual General Meeting convened to approve the The Annual General Meeting, having taken note of the report of financial statements, but which in any case may not exceed the Board of Directors and the information appearing in the eighteen months. The Annual General Meeting gives full powers, notice submitted to the Commission des Opérations de Bourse, including that of delegation and subdelegation, to the Board of hereby authorizes the Board of Directors, in conformity with Directors to implement this authorization. article 217-2 (amended) of the Act of July 24, 1966, to deal in Twelfth resolution (Bond issues) the company's own shares under the conditions and within the limits established by law. The purpose of this authorization is to The Annual General Meeting, having taken note of the Board allow the company to avail itself of the possibility of dealing in of Directors' report: its own shares with a view to: – terminates as from this Annual General Meeting the autho- – stabilizing the share price by buying and selling shares on the rization given to the Board of Directors by the Joint Annual stock market General Meeting of June 11, 1998, as part of the Ninth Resolution regarding the issue of bonds; – managing its cash funds and shareholders' equity and – using some or all of the shares thus acquired in order to: – authorizes the Board of Directors to issue, at its own dis- • transfer them to employees and managers of the company cretion, bonds up to a maximum nominal value of EUR 3 bil- and its group, in compliance with legal provisions (stock lion (FRF 19,678,710,000) or its equivalent in foreign cur- options, employee profit sharing, sale of shares reserved for rencies, in the forms, at the times, and on the terms and employees) conditions which the Board deems to be appropriate. Such or bonds may be issued in one or several tranches, in France or abroad, in euro, French or foreign currency, or in a unit of • to tender them in connection with share exchanges, effected account established with reference to several currencies. either through offers or otherwise, initiated by the company GbF Ch 6/7/8 -88/108Angl.exe 28/04/99 6:37 Page 96

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To this end, full powers are given to the Board of Directors to 4. Decides that shareholders shall be allowed to exercise fix, within the framework of the relevant laws, the characte- their preferential subscription right, pursuant to the sta- ristics of the bonds and to take all measures necessary tutory provisions, on a full allotment basis. Furthermore, towards making one or more bond issues. the Board of Directors shall be empowered to allow the Shareholders to subscribe to a number of shares, on a The Board of Directors will also have full powers to decide if a prorata basis, greater than that they would have subscri- guarantee should be attached to the bonds and, if so, to defi- bed on a full allotment basis, in proportion to the sub- ne and grant this guarantee, and to form a bond-holders' scription rights they hold and in any case to within the group and take all the relevant measures pertaining thereto. amount they would have applied for; This authorization given to the Board of Directors is valid If the subscriptions on an irreducible basis and, as the case from this Annual General Meeting until the date of the may be, on a reducible basis, have not absorbed the whole Annual General Meeting called to approve the financial state- issue of shares or securities as defined above, then the ments for 2000. Board of Directors may use, in the order in which it deems it SPECIAL BUSINESS to be suitable, one or other of the following options:

Thirteenth resolution (Issue of equity-linked securities – to limit the issue to the amount of subscriptions, provided with subscription rights) that the latter amounts to at least three-quarters of the issue decided upon; The Annual General Meeting, after reading the Board of Directors' report and the auditors' special report and pur- – to freely distribute all or part of the unsubscribed shares; suant to the provisions of paragraph 3 of article 180-III of Act – to offer to the public all or part of the unsubscribed shares; 66-537 of July 24, 1966: 5. Decides that the issue of share warrants in the company 1. Hereby delegates to the Board of Directors the powers under article 339-5 of the Act of July 24, 1966, may take necessary to carry out, in one or more stages, in the pro- place either by an offer for subscription pursuant to the portions and at the periods it shall determine, both in conditions stipulated above, or by free allotments of France and abroad, the issue of shares of the company and shares to the holders of existing shares; of any securities of any kind whatsoever giving right, immediately and/or in the future, to company shares; 6. Notes that, where necessary, the above-mentioned power of attorney shall legally favor holders of securities giving 2. Hereby decides that the amount of any share capital future access to company shares likely to be issued, waive increases likely to be carried out immediately and/or in shareholders preferential rights to subscribe to the shares the future, in respect of the aforementioned delegation, to which such securities give right; shall not be in excess of FRF 3 billion (EUR 457,347,051.71) at par value, to which amount shall be added, as the case Decides to withdraw the preferential subscription rights may be, the total par value of the additional shares to be from shares issued by bond conversion or by exercise of issued in order to preserve the right of the holders of warrants; securities entitling them to shares, pursuant to French 7. Decides that the sum accruing to or which must accrue to law; the company for each share issued under the afore-men- 3. Also decides that the par value of debt instruments likely tioned power of attorney shall be at least equal to the par to be issued in respect of the above-mentioned delegation value of the shares; shall not be more than EUR 3 billion (FRF 19,678,710,000), 8. Decides that the Board of Directors shall be fully authori- or the equivalent in foreign currencies; zed with the option to subdelegate to its Chairman, pursuant to the conditions stipulated by law, to implement GbF Ch 6/7/8 -88/108Angl.exe 28/04/99 6:38 Page 97

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said authorization for the purposes namely of determining 1. Hereby delegates to the Board of Directors the powers the dates and terms of the issues together with the forms necessary to carry out, by way of a public call for invest- and features of the securities to be created, of fixing the ment, in one or more stages, and in the proportions and at issue prices and terms, of determining the amounts to be the periods it shall determine, both in France and abroad, issued, of fixing the coupon date, even retroactive of the the issue of shares of the company and of all securities of shares to be issued, of determining the method of paying- any kind whatsoever giving access, immediately or in the up the shares or other securities issued and, as the case future, to company shares; including if such securities are may be, of setting out the terms for their repurchase on issued pursuant to article 339-3 of the above-mentioned the Stock Exchange and the possibility of suspending the law of July 24, 1966; exercise of the subscription rights to shares attached to 2. Hereby decides that the amount of capital increases likely the securities to be issued, for a period of not more than to be completed immediately and/or in the future, in res- three months, of determining the conditions on which shall pect of the above-mentioned power of attorney, shall not be ensured the preservation of the rights of holders of be more than FRF 1.8 billion (EUR 274,408,231.03) in par securities giving future access to the share capital, and value; to which amount shall be added, as the case may be, same pursuant to the legal and statutory provisions. the nominal total of the extra shares to be issued in order Additionally, the Board of Directors or its Chairman shall to preserve, pursuant to the law, the rights of those hol- be authorized, as the case may be, to carry out any deduc- ders of securities entitling them to shares; tions from the issue price or prices and in particular those in respect of the costs incurred by the completion of the 3. Also decides that the total nominal value of debt instru- issues, and to generally take all necessary steps and enter ments likely to be issued in respect of the above-mentio- into all agreements to complete the issues anticipated; and ned delegation shall not be more than EUR 3 billion (FRF to determine any increase or increases of capital resulting 19,678,710,000), or the equivalent of said amount in the from any issue completed using the said authorization; and event of an issue in foreign currencies, or in a unit of to amend the articles of incorporation accordingly; account determined with reference to several currencies.

In the event of debt issue, the Board of Directors shall be 4. Decides to cancel the preferential subscription right of authorized, with the option to subdelegate to the Chairman, shareholders to the securities to be issued, it being agreed in particular to decide its nature, whether subordinated or that the Board of Directors shall be authorized to give sha- not, to determine its interest rate, its maturity, the redemp- reholders the option to subscribe on a priority basis to all tion price whether fixed or variable and with or without pre- or part of the issue, during the period and on the terms mium, the amortization terms in view of market conditions; that it shall lay down. Such a subscription priority shall not and the conditions under which such securities entitle the lead to the creation of negotiable rights, but should the holder to shares of the company; Board of Directors deem it to be appropriate it should be exercised on either a full allotment or prorata basis; The authorization thus given to the Board of Directors is valid with effect from this day and until the General Meeting 5. Decides that if subscriptions by shareholders and by the held to render a decision on the accounts of the 2000 fiscal public have not absorbed the whole of an issue of shares year. or of securities, such as set out above, then the Board of Directors may use, in the order it deems appropriate, one Fourteenth resolution (Issue of equity-linked securities or all of the following options; without subscription rights) – to limit, as the case may be, the issue to the amount of sub- The Annual General Meeting, after hearing the Board of scriptions, providing such amount is equal to at least three Directors' report and the auditors' special report and pur- quarters of the issue decided upon; suant to the provisions of paragraph 3 of article 180 - III of Act 66-537 of July 24, 1966: GbF Ch 6/7/8 -88/108Angl.exe 28/04/99 6:38 Page 98

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– to freely distribute all or part of the unsubscribed shares months; of determining the conditions on which will be ensured the preservation of the rights of holders of securi- – to offer all or part of the unsubscribed shares to the public ties giving future access to the share capital, and pursuant 6. Notes that, as the case may be, the above-mentioned to the legal and statutory provisions. Additionally, the power of attorney means that, for the benefit of holders of Board of Directors or its Chairman may carry out, as the securities giving future access to company shares likely to case may be, any deductions from the issue price or prices be issued, shareholders have to waive their preferential and, in particular, the deduction of the costs incurred by right to subscribe to the shares to which such securities the completion of the issues; and, generally, take all neces- give right; sary steps and enter into all agreements to ensure the satisfactory completion of the issues planned; and record Decides to cancel the preferential right of shareholders to any increase or increases of capital resulting from any subscribe to shares issued through the conversion of issues completed using the above-mentioned authoriza- bonds or the exercise of warrants. tion; and amend the articles of incorporation accordingly; 7. Decides that the amount accruing or which must accrue to In the event of a debt issue, the Board of Directors is fully the company for each of the shares issued under the abo- authorized, with the option to subdelegate such authoriza- ve-mentioned power of attorney, after taking into account, tion to the Chairman, in particular to decide on whether in the event of issues of independent share subscription such issues are subordinated or not; to set the interest notes, the issue price of such notes, shall be at least equi- rates, the term of said issues, the redemption price whe- valent to the average of the first prices on the Stock ther fixed or variable, with or without discount, the condi- Exchange of the company's shares over ten consecutive tions of amortization in terms of market conditions, and trading days selected from the twenty trading days prece- the terms under which such securities shall entitle its holding the issue of the said securities, such average being ders to shares in the company; adjusted to take into account the coupon date; 9 The authorization thus given to the Board of directors is 8 Decides that the Board of Directors shall be fully authori- valid with effect from this day and until the General zed, with the option to subdelegate such authorization to Meeting held to render a decision on the accounts of the its Chairman, pursuant to the conditions stipulated by the 2000 fiscal year; law to implement such delegation for the purposes, in particular, of determining the dates and conditions of the Fifteenth resolution (To increase the capital by incorpora- issue, together with the form and features of the securi- tion of reserves, profits, issue or share premiums) ties to be created; of laying down the prices and terms of The Extraordinary General Meeting rendering a decision on the issue; of determining the amounts to be issued; of set- the conditions of quorum and majority required for ordinary ting the coupon date, even if retroactive, of the shares to general meetings, having duly heard the Board of Directors’ be issued; of determining the method of paying-up the report, hereby delegates to the Board of Directors the autho- shares or other securities issued and, as the case may be, rization required to increase, in one or more stages, the sha- of stipulating the terms of their repurchase on the Stock re capital to within a maximum nominal amount of FRF 6 bil- Exchange, and the possibility of suspending the exercise lion (EUR 914,694,103.42), by successively or simultaneously of the rights of allocation of shares attached to the securi- incorporating in the capital all or part of the reserves, profits ties to be issued for a period of not more than three or issue, merger or share premiums, to be carried out by the GbF Ch 6/7/8 -88/108Angl.exe 28/04/99 6:38 Page 99

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creation or free allotments of shares or by jointly using both The issue of new shares to remunerate shares contributed to methods; a takeover bid with exchange of shares shall, pursuant to the provisions of article 180 of the Act of July 24, 1966, result The General Meeting hereby decides that any rights repre- from the issue of securities of all classes giving access imme- senting fractions shall not be negotiable and that the corres- diately and/or in the future to the proportion of the share ponding shares shall be sold, the proceeds from the sale capital; the par value of the debt issues, as the case may be, being allocated to the rights holder no later than thirty days and pursuant to the above authorization, shall not be more after the date of entry to their account of the whole number than EUR 3 billion (FRF 19,678,710,000); of shares allocated; The General Meeting hereby decides that the Board of The General Meeting hereby fully authorizes the Board of Directors shall be fully authorized, with the option to subde- Directors, with the option to subdelegate such authorization legate such authorization to its Chairman, pursuant to the to its Chairman, pursuant to the conditions stipulated by law, conditions stipulated by law, to implement such authoriza- in particular in order to fix the dates and terms of the issues, tion with a view to, in particular: to determine the amounts to be issued and, more generally, to take all steps to ensure their satisfactory completion; to – determining the exchange parity and, as the case may be, ensure all procedures and formalities; to implement the rele- the amount of the down-payment to be made; vant capital increase or increases; and to amend the articles – recording the amount of shares contributed to the exchange of incorporation; of shares; The authorization thus given to the Board of Directors is – determining the dates, terms of issue, in particular the pri- hereby valid with effect from this day and until the General ce and the coupon date, of the new shares or, as the case meeting held to render a decision on the accounts of the may be, of the shares giving access immediately and/or in 2000 fiscal year. the future to a proportion of the share capital;

– entering into liabilities under the heading ‘share premium’, Sixteenth resolution (To increase the capital with a view on which shareholders will have rights, the differences bet- to completing a takeover bid with exchange of shares) ween the issue price of the new shares and their par value;

The General Meeting, after taking note of the Board of – deducting, as the case may be, from the said share pre- Directors’ report and of the auditors’ special report and pur- mium, all the costs an brokerage incurred by the authorized suant to the provisions of article 193-1 of the Act of July 24, transaction; 1966, hereby authorizes the Board of Directors to increase and the share capital by a maximum nominal amount of FRF 1.8 billion (EUR 274,408,231.03) by the successive or simulta- – generally taking all necessary steps and entering into all neous issue, in one or more stages, of new company shares agreements to complete the authorized transaction suc- with a view to remunerate shares contributed to a takeover cessfully, and recording any subsequent capital increase or bid with exchange of shares in another company listed on the increases; and amending the articles of incorporation official or second market of a Member State of the European accordingly; Economic Area (other than France) or a member country of the Organization for Economic Cooperation and Development; GbF Ch 6/7/8 -88/108Angl.exe 28/04/99 6:38 Page 100

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The authorization thus given to the Board of Directors is nominal value of the shares such that the value obtained by hereby valid with effect from this day and until the General applying the conversion rate is rounded up to the next cent meeting held to render a decision on the accounts of the (hundredth of one euro) or, at most, the next euro 2000 fiscal year. or Seventeenth resolution (General limitations of authorizations) – reduce the share capital in order to round the nominal value The General Meeting, having taken note of the Board of of the shares down to the next cent (hundredth of one euro) Directors’ report and, after passing the thirteenth, fourteenth, or, at most, the next euro and allocate the reduced amount fifteenth and sixteenth resolutions, hereby decides: to an unavailable reserve.

– To set at EUR 3 billion (FRF 19,678,710,000) or at the equiva- – decides that the Board of Directors will have full powers, lent of that amount, in the event of an issue in a foreign cur- with the possibility of subdelegation to the Chairman, in rency or in a unit of account set with reference to several cur- compliance with the legal and regulatory provision appli- rencies, the maximum par value of debt instruments likely to cable to the implementation of this delegation, to determi- be issued in respect of the authorizations given in the above- ne the date at which the share capital will be converted to mentioned resolutions euros, to make the corresponding changes to the articles of incorporation and to undertake all related formalities. and

– To set at FRF 6 billion (EUR 914,694,103.42) the maximum nominal amount of the share capital increases, whether Nineteenth resolution (Approval of the merger by absorption immediately and/or in the future, likely to be carried out in of SODICAM) respect of the authorizations given in the above-mentioned The Annual General Meeting: resolutions, it being pointed out that to this nominal amount will be added, if applicable, the nominal amount of the shares – having taken note of the report of the Commissaire aux to be issued additionally to preserve the right of the holders apports (a public officer designated to assess the value of of securities entitling them to shares pursuant to the law. contributions in kind to capital):

– having taken note of the merger treaty with SODICAM (a société anonyme with capital of FRF 11,000,000, with regis- Eighteenth resolution (Conversion of the share capital to tered offices at 34, quai du Point du Jour, 92100 Boulogne euros) Billancourt, France; registered with the Registrar of The Annual General Meeting, having considered the Board of Companies at Nanterre under the number B 302 135 629) Directors' report: whereby SODICAM contributes all its assets and liabilities to Renault for the purposes of the merger - delegates to the Board of Directors full powers to decide, in compliance with applicable legal and regulatory provisions – hereby approves the agreement, and consequently: and this resolution, to convert the company's share capital to – approves the contributions made by SODICAM pursuant to euros, and hence: the merger as well as the valuation of said contributions, – increase the share capital, in connection with the authori- and decides that Renault shall merge with and absorb zation given to the Board of Directors under the fifteenth SODICAM. The difference between the net value of the resolution of this Annual General Meeting, by raising the assets contributed by SODICAM and the carrying value of GbF Ch 6/7/8 -88/108Angl.exe 28/04/99 6:38 Page 101

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its securities in Renault's books shall be taken to an In consequence whereof, the text of the articles of incorpora- account titled "merger cancellation" tion governing the company shall be that submitted to the officers of the general meeting and made available to sharehol- – decides that since Renault has owned all SODICAM's shares ders in the manner and within the time limits prescribed by since the date the merger treaty was filed with the law. Such text, duly initialled and signed by the aforementioned Commercial Court, no shares will be issued as consideration officers, shall be appended to the minutes of this meeting. for the contribution, and that the acquired entity will be dis- solved immediately, without liquidation, due to the sole fact ORDINARY BUSINESS of the merger, which will become final on July 1, 1999. Twenty first resolution (Appointment of a director) SPECIAL BUSINESS The Annual General Meeting appoints Mr Yoshikazu Hanawa as Twentieth resolution (Modification of articles of incorpo- director for a period of six years, that is, until the Annual ration) General Meeting called to approve the accounts for the year to 31 December 2004. The Annual General Meeting, having taken note of the Directors' Report, decides to modify paragraph 1 of article Twenty second resolution (Powers to attend to formalities) 10.1.A/ of the articles of incorporation with a view to increasing The Annual General Meeting gives full powers to the bearer of the number of directors appointed by annual general meetings a copy or extract of the minutes of this Meeting to attend to of shareholders. all the formalities of deposit and publication provided for by Accordingly, paragraph 1 of article 10.1.A/ concerning the num- the law. ber of directors appointed by annual general meetings of shareholders shall now read:

"10.1 The company is administered by a board of directors composed of:

A/ Directors appointed by the Annual General Meeting of shareholders

There shall be no fewer than 3 (three) such directors and no more than 12 (twelve). Directors can be natural or legal persons. Legal persons must designate a permanent representative, who has the same obligations and responsibilities as those that would obtain if he or she were appointed in person, without prejudice to the joint and several liability of the legal person he or she represents."

The remainder of article 10 is unchanged.

The Annual General Meeting approves and adopts all the provisions of the new text, as submitted.